Real Estate Investment Funds: Financial reporting - Alfi

how does increased valuation uncertainty affect fund NAV production?
1. With respect to
investee property
portfolios
a. Some valuations of real estate are uncertain
and may be subjective due to a lack of
comparable transactions for appraisers to
consider. Valuers, for example, may draw
attention to the increased uncertainty in their
reports or even caveat the valuation amount
calculated. The reliability of "investee"
property valuations may impact the
reliability of the NAVs reported by these
"investee" funds on which FOREFs base the
valuation of their investments.
2. With respect to
financial position of
investee funds
a. As well as the additional increased inherent
uncertainties in respect of property
valuations, current market conditions may
have had further impacts on the financial
position, and hence the valuation, of
"investee" funds. These include "going
concern" and liquidity issues due to:
Breaches of loan covenants;
Q Q The need to re-finance expiring facilities;
Q Q Default of investors in terms of capital calls;
Q Q Unavailability of capital from new investors;
Q Q Default of lenders in respect of undrawn
credit facilities;
Q Q Increased difficulties in the rental markets in
terms of achieving target rents and
occupancy; and
Increased requests for redemptions by investors.
b. OREFs themselves, as well as "investee"
investments, may be affected by the above
factors. These, for example, may lead to
uncertainties with respect to the "going
concern" assumption that will need to be
addressed in the FOREFs reporting.
3. With respect to
delayed information
from investee funds
The inherent valuation uncertainty is further
exacerbated by the fact that there is a time
lag between the reporting date of the FOREF
and the receipt of information relevant to
that date from "investee" funds. If valuations
of "investee" investments are not based on
up to date information there is a risk that
these will be unreliable and potentially
materially misstated given volatility of
pricing due to current market conditions.
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