Managing Private Real Estate Funds – The Changing Role of the CFO and Chief Compliance Officer

PERE Real Estate CFOs Forum

Yesterday, I attended the PERE Real Estate CFOs Forum. These are my notes from this session.

  • Moderator: Gary Koster, Americas Leader- Real Estate Fund Services, Ernst & Young LLP
  • Peter C. Cluff, Principal, Europa Capital LLP
  • Stuart Koenig, Global CFO & Chief Administrative Officer, AREA Property Partners
  • Dominic Petrucci, Chief Financial Officer, Buchanan Street Partners

What are the most demanding issues confronting the CFO role? The panel came up with these:

  • Investor relations
  • Compliance
  • Valuations
  • Liquidity management
  • Debt refinancing

Investor relations is not a new concept, but investors are looking closer at their investments in real estate. Investors want transparency from their investments. There is a need to be proactive instead of reactive and increase disclosure. Investors are being reactive to the financial crisis news. So there were requests for amount of Lehman exposure, Madoff exposure and custody procedures that came out of last year’s crises.

Regulatory compliance is looming in front of the industry. Some of this was a reaction to hedge funds, but the regulatory proposals do not define “hedge funds” and end up putting real estate funds in the splash zone. There is lots of uncertainty on how the regulations are going to affect the business model for private equity real estate funds.

Valuations are an issue because there is so little trading of properties. Tenant rental rates are also greatly in flux. There is increased use of third party appraisals above and beyond the requirements in the fund agreements. The most recent property sales varied widely and offered little help in determining values.

There is some concern that interests are getting out of alignment with more assets getting underwater. Firms need to be aware of the potential conflicts and deal with it head-on. It’s important to emphasize that the general partner sponsors also have money invested and is as much at risk as the investors. The concern is that you might lose good people who are looking for more entrepreneurial opportunities, leaving behind a more asset management focused model. It’s important to keep younger people in the organization because of the valuable lessons they have learned about the commercial real estate market in a downturn.

, , , ,

Comments are closed.