It was roughly two years ago at the 2014 PERE CFO and COOs Forum that Jarrod Rapalje, a real estate consultant to some of the biggest US pension funds, addressed a frustrating reality that most in the crowd had suffered through: completing LP due diligence questionnaires (DDQs) that require answers in a range of different styles and formats, despite asking the same general questions.
As long-time readers of pfm are aware, the Institutional Limited Partners Association (ILPA) attacked the same problem in the private equity community by releasing a standardized DDQ that has saved many CFOs from having to answer the same LP question twice. Its use isn’t universal – but it seems to be on the rise; the ILPA DDQ is now averaging roughly 100 downloads per month since its release in 2013, an ILPA spokesperson told us.
Couldn’t the same be done for real estate? As Rapalje mentioned in 2014, real estate investors in Europe have already demonstrated an interest in using a standardized DDQ, which benefits CFOs just as much as LPs.
Late last year,pfm attended a conference in New York hosted by sister titlePERE and asked a number of attendees whether it was possible for a standardized DDQ to take off in US real estate circles.
“Of course we’d love it, but I highly doubt it will happen in my career,” said one CFO on the sidelines. His sentiment was echoed by a number of others.
The hurdle seems to be a lack of attention and coordinated efforts. In Europe, the Amsterdam-based Association for Investors in Non-Listed Real Estate Vehicles (INREV), created a standardized DDQ in 2007 that a number of European investors are now starting to adopt. The US real estate industry doesn’t have a similar trade body to push for comparable steps and INREV, for its part, only started making US inroads two years ago by beginning to host training seminars and events.
Happily, INREV wants to do more. The trade body has begun working with real estate organizations like the Pension Real Estate Association and National Council of Real Estate Investment Fiduciaries to adapt the INREV DDQ for a US audience. What’s more is that INREV plans to liaise with US consultants this year in order to reach the LP community and learn how to make a dent in the current culture of customization, pfm has learned.
At a time when real estate CFOs are increasingly inundated with compliance and reporting requirements, streamlining the time and effort spent on DDQs can only stand to benefit the fund manager, its workflows and its investor relations function. All of which should be pleasing to LPs.
But for INREV’s efforts to work, both LPs and GPs will have to give the matter their attention and push for change.