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News & opinion

20 MARS 2018

Real estate risk management and valuation under the AIFMD

Real estate investment stakeholders and professionals came together to discuss best practices and compliance with legislation at a recent workshop hosted by Stibbe in Brussels.

Introduction to the RICS Guidance Note was provided by Zsolt Toth, External Affairs and EU Policy Manager, RICS, and Juergen Wiegand MRICS, board member of RICS in Belux and vice president at J.P. Morgan Luxembourg. The debate was moderated by Rudy Nauwelaerts MRICS, board chairman of RICS Belux and partner and Stibbe.

The Alternative Investment Fund Management Directive (AIFMD) requires fund managers to ensure that there are appropriate and consistent procedures concerning the valuation of an AIF, such as clarifying the valuation methodologies and the roles and responsibilities of various parties involved in the valuation process. The most significant consequence of being appointed as an external valuer is the liability that follows from the appointment. External valuers are liable to fund managers for any losses suffered by the AIFM as a result of the negligence or intentional failure of the external valuer. The legislation doesn’t allow the possibility to limit liability through a contractual agreement between the valuer and fund manager, therefore this option will require careful consideration bearing in mind the risks and the increased costs to cover professional indemnity insurance (PII).

AIMFD contains important provision not only for the valuation function but also for the risk management of real estate investment funds. Given the importance and size of real estate for Europe’s alternative investment fund industry, RICS Europe has produced a guidance note to provide support to fund managers. The guidance note is the outcome of a thorough consultation with senior industry professionals responsible for risk management within tier one institutional real estate asset management firms.

The target audience of the document is RICS members, real estate professionals and the wider AIFM stakeholders’ community, including AIFM real estate risk managers, investment/portfolio managers, investment advisors, investment/valuation committee members, board members and investors. The guidance note is effective as of 1 March 2018.

The EU legislator launched a partial review of the directive focusing on a number of key impact areas. We advised that the ‘unlimited liability’ of external valuers to be one of the issues to be given priority which has now been included in the scope of the assessment.

We are developing a policy response asking the EU policy-maker to clarify matters around definitions and appointment of ‘valuer’, ‘valuation advisor’ and ‘external valuer. To help us assessing the wider impact of the legislation on the sector, interested members are invited to contact us directly.

Further information: Zsolt Toth