CBI Consultation on Borrowing Limits and Redemption Provisions in Irish Real Estate funds

CBI Consultation on Borrowing Limits and Redemption Provisions in Irish Real Estate funds

The CBI issued Consultation Paper (CP 145) on proposals to introduce borrowing limits and guidance on redemption provisions in regulated real estate funds. This follows detailed analysis of the Irish real estate market and the roll of funds, as set out in CP145. The consultation is open until Friday, 18 February 2022.

The consultation document is only a consultation, however we would expect the CBI to follow through and introduce some borrowing limit and some guidance. 

Some relevant points relating to the proposed borrowing limit:

  • The proposed borrowing limit would be a 50% loan to value limit (see page 19 of CP 145).
  • There would be a three year lead in period for existing funds to allow them become compliant – though any that was over the limit would need to have a plan as to how the level of borrowing will be reduced in an orderly manner within the three year lead in period.
  • Consultation open until 18 February 2022.  Any borrowing limit would be introduced sometime after the consultation closes – hard to say when but end Q2 would be a reasonable expectation (with the three year lead-in period expected to run from then).
  • The borrowing limit will apply to any Irish QIAIFs investing over 50% directly or indirectly in Irish property assets (not clear if this is 50% of NAV or GAV which may be quite different – we will look to clarify that this is GAV which would make most sense).  There is a carve-out for publicly traded shares that are held by the fund and have been issued by an unrelated entity. 
  • Irish retail investor AIFs that invest in Irish real estate are outside the scope of this change as they are already subject to a lower borrowing limit.

Some points on the guidance on redemption provisions:

  • This will only be relevant to QIAIFs that are "open-ended with limited liquidity" – closed ended funds will not be affected as they do not offer redemption opportunities to shareholders.
  • Again the guidance will apply to any Irish regulated fund investing over 50% directly or indirectly in Irish property assets (not clear if this is 50% of NAV or GAV which may be quite different – we will look to clarify that this is GAV which would make most sense). Again there is a carve-out for publicly traded shares that are held by the fund and have been issued by an unrelated entity. 
  • The guidance will look for a minimum period of 12 months between the date the shareholder submits a redemption request (the dealing deadline for redemptions) to the date they expect to receive the redemption proceeds (the settlement date for redemptions). The CBI also expects the gap between the dealing deadline and the dealing day (which will come before the settlement day) to be material though they have not stipulated what this should be.
  • Any funds with a period shorter than 12 months (between dealing deadline and settlement date) will need to be able to justify this.
  • No lead in time for existing funds is proposed – CP 145 explicitly states that the CBI expect existing funds to make immediate changes once the Guidance is brought in.
  • Again the guidance would be introduced sometime after the consultation closes – hard to say when but end Q2 would again be a reasonable expectation.
  • The draft guidance make no reference to open-ended with limited liquidity funds where any redemption is at the sole discretion of the fund board – in our view such funds should be excluded from these requirements as the board have sole discretion to manage liquidity by refusing or scaling back redemption requests.

The A&L Goodbody Asset Management & Investment Funds team will be submitting a response and working with Irish Funds on their response as well. Responses will be published. Please speak with your usual contact on our team if you would like to contribute.

For more information please contact a member of the Asset Management & Investment Funds team.

Date published: 26 November 2021