An increasing number of management companies offer investments in real estate mutual funds to a wide range of retailers

An increasing number of management companies (MCs) offer investments in residential real estate to a wide range of retailers. Alfa Capital Management Company has expanded the range of closed-end investment funds that invest in such real estate and are available to unqualified investors. However, market participants note not only the benefits, but also a number of risks of such products, which limit their popularity.

On Friday, Alfa Capital Management Company began to form a closed-end mutual investment fund (ZPIF) Alfa Capital Southern meters. The fund’s strategy involves investing shareholders’ funds in apartments in the Flora residential complex in the city of Sochi with subsequent sale after delivery.

“Purchase of apartments under a share agreement in the second stage will be carried out on the basis of an exclusive discount for a wholesale purchase (20–25% of the market value),” said Nikolai Antipov, director of the Alfa Capital institutional and corporate client center.

The fund is available to unqualified investors (the minimum entry threshold is 100,000 rubles). The term for the formation of the fund is six months, but, as noted by the company, the amount of funds necessary for this has already been collected. As part of the trust management strategy of the same name, launched two months earlier, the management company raised over 350 million rubles. The developer undertakes to buy the apartments that the Management Company was unable to sell at a fixed price exceeding the sale price by at least 15%.

In the last year, real estate closed-end mutual funds aimed at unqualified investors have become the driving force behind the growth of retail mutual funds. According to Kommersant’s estimate, based on the reports of the funds, over the past four quarters their assets have grown by more than two and a half times and exceeded 106 billion rubles. However, almost all of the growth came from rental real estate funds (see Kommersant dated May 29). ZPIFs with residential real estate available to unqualified investors are a rarity. There are only two funds of this type managed by MCs on the market, both of them were created in the second half of 2022.

The limited supply of residential real estate funds is associated not only with stringent regulatory requirements, but also with limited liquidity. Unlike rental funds, they do not generate a regular income, and funds are usually frozen for the entire life of the fund. “Interim payments are often not provided for by the business model itself,” says Vladimir Stolnikov, investment director of the Trinfico group.

Given the urgency of such investment projects at the level of three to seven years, low liquidity is a big problem, especially when attracting private investors, Dmitry Yartsev, Deputy General Director of KSP Capital UA, emphasizes. In addition, the impact of market prices on such funds is higher, especially after the transition of the market to escrow accounts, which reduced the difference in prices depending on the stage of project completion.

At the same time, according to Mr. Yartsev, an additional buyback condition, which is quite rare in such funds, reduces risks for investors, this is especially true in long-term projects. “This mechanism makes it possible to fix the required yield for shareholders, since the discount parameters and the buyback price are fixed at the conclusion of the initial equity agreement,” says Marina Kharitonova, CEO of Accent Capital.

So far, management companies prefer to create residential real estate funds for a limited circle of qualified investors. Such funds have lower regulatory requirements, but can bring more investment income due to earlier entry into projects and the use of loan funds.

“For investors with a high risk appetite, we offer participation in such projects at the stage before obtaining a construction permit and the start of project financing; for more conservative investors, we offer participation in the authorized capital of the developer at the stage of completion of construction and before the disclosure of escrow accounts,” says the director Management Department of ZPIF RSHB Asset Management Boris Golubev. Vladimir Stolnikov notes that “there are several objects in the pipeline, but, given the specifics of the company, in the first projects it will rather concentrate on a closed list of investors.”

Vitaly Gaidaev