Fast close implications for real estate management companies

Tue 15 Feb 2022

The market is seeing a growing trend for real estate management companies seeking to speed up the process of closing their accounts. This is largely due to the positioning of real estate funds in life insurance contracts requiring increasingly shorter valuation intervals.

Furthermore, as the regulatory obligation to publish Net Asset Values (NAVs) within the timeframe set out in the prospectus is closely monitored by the Autorité des Marchés Financiers, the adoption of fast closing allows the management company to protect itself from any time slippage. At the same time, it frees up reliance on a high standard of real estate accounting which is not always readily available from property managers.

Although the exercise may seem easy in theory, in practice it is more complex because a transition to fast closing requires a mobilised and efficient governance system, which calls for the attention and recurrent involvement of almost all the company’s departments:

• Property management and asset management, which must produce reliable budgets and compare them periodically with the actual situation,

• The investment department, which must regularly inform the accounts department of acquisitions and disposals in past and future periods,

• The fund management department, which needs to validate the valuation of real estate assets within the required timeframe,

• Management control, which has to orchestrate the entire budget process,

• The accounts department, which regularly needs to integrate budgetary and accounting data, as well as data on the valuation of property assets,

• Financial control, which has to check the accuracy and completeness of the actual or budgeted accounting data,

• The commercial department, which has to report at the earliest opportunity the fair value of the funds in which subscribers invest to those to whom the performance merits of the vehicles have previously been presented,

• The head of compliance and internal control, who ensures strict compliance with the rules of the Autorité des Marchés before each publication of NAVs, thereby guaranteeing the continuity of the management company’s operations by preserving its authorised status.

Thus, if fast closing is becoming a must for real estate management companies that wish to be competitive in the REIM market, it has an impact on the whole organisational model of the company. It is important to ensure that general management supervises the implementation of this project to ensure the involvement of each department and the interconnections between them, so that it can optimise the operational efficiency of the investment.

Key points:

• Mobilise a well-functioning governance system that demands attention
• Ensure that each department concerned is on board
• Understand the reasons why fast closing is wanted
• Identify the management companies involved
• Optimise the operational effectiveness of the way fast closing is implemented.