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Written By Marybeth Kronenwetter, Director, Reporting Standards | NCREIF
Interviewing John Caruso, Managing Director, Global Head of Fund Finance | Nuveen Real Estate
The real estate industry thrives on transparency and consistency. Informed investment decision-making relies on reliable and standardized reporting. This is where the NCREIF PREA Reporting Standards (Reporting Standards) come into play. Developed as an industry initiative by the National Council of Real Estate Investment Fiduciaries (NCREIF) and the Pension Real Estate Association (PREA), these standards provide a framework for transparent and consistent reporting in the real estate sector.
Who are NCREIF and PREA, and why do they sponsor the Reporting Standards?
NCREIF and PREA are two prominent organizations in the private institutional real estate investment industry. NCREIF acts as an unbiased collector and disseminator of real estate performance information, while PREA focuses on research, membership interaction, and information exchange. Together, they represent a wide range of professionals and businesses within the industry.
The genesis of the Reporting Standards can be traced back to the early 1990s when NCREIF's founder, Blake Eagle, recognized the importance of establishing high-quality standards in the industry. He believed that the quality of the products offered hinges on the standards governing them. This led to a collaboration between NCREIF and PREA to sponsor the initiative, resulting in the birth of the Reporting Standards.
Summarizing the Reporting Standards
The Reporting Standards Council, comprising 12 senior professionals from various industry perspectives, plays a vital role in the development and maintenance of the Standards. These professionals represent valuation specialists, public accounting firms, investors (LPs), investment managers, and fund administrators. The Council addresses industry issues where standardization and transparency can enhance investment decision-making.
The Reporting Standards materials are organized into two volumes. Volume I contains the required and recommended practices for claiming compliance with the Standards. Volume II provides additional guidance and discipline-specific manuals on valuation, fair value accounting, and performance measurement. It also includes valuable research, tools, and checklists for easy self-assessment of compliance.
Beneficiaries of the Reporting Standards
The primary beneficiaries of adopting and complying with the Reporting Standards are investors and investment managers. Investors benefit from transparent and consistent reporting, enabling comparability across funds managed by different investment managers. Investment managers can provide standard reports to all their investors instead of having to create custom reports for each.
Moreover, compliance with the Reporting Standards proved immensely valuable during the COVID-19 crisis. Investors were able to access essential data on funds and properties promptly due to the embedded transparency in the Standards. This facilitated their assessment of the crisis's impact on their investments. The Reporting Standards Council and the NCREIF Accounting Committee promptly produced a guide for disclosing COVID-19 rent relief, aiding investors' understanding of the performance impact caused by rent adjustments.
Challenges and Appraisers' Role
Implementing and complying with the Reporting Standards is not overly challenging, especially for those already active in the real estate industry. The Standards provide a comprehensive roadmap that enhances current best practices. Compliance becomes a natural extension of working with stakeholders. For example, the Standards require quarterly fair values for properties, which aligns with the practices already followed by managers and sponsors operating in this space.
Appraisers play a crucial role in the real estate industry and within the Reporting Standards. The Standards acknowledge the importance of appraisal processes in determining fair values reported to investors. The selection of expert appraisers and the establishment of valuation methodologies are detailed within the Standards. Disclosures regarding differences in valuation opinions and dispute resolution further contribute to the transparency of the appraisal process.
Updates for 2020 and Future Focus
The Reporting Standards undergo minor annual updates to accommodate industry changes and align with foundational standards such as Generally Accepted Accounting Principles (GAAP), the Global Investment Performance Standards (GIPS®), and the Standards of Professional Appraisal Practices (USPAP).
Recently, two factors necessitated a major 2020 update. The first involved changes in valuation requirements addressed in the GIPS 2020 update, particularly impacting compliance for closed-end funds. The second factor involved the incorporation of the Total Global Expense Ratio (TGER) into the Reporting Standards.
Looking ahead, the RS Council's focus will be on increasing awareness, advocacy, promotion, education, and compliance with the Standards. Efforts will include working closely with organizations like The Counselors of Real Estate. Additionally, the RS Council aims to develop investor-specific reporting standards, focusing on reporting considerations specific to an investor's stake in a fund. The goal is to establish best practices for reporting asset-specific information and cater to the growing demand for customized reporting.
The Global Implications of the Reporting Standards
The Reporting Standards are currently U.S.-based, but as the industry becomes increasingly global, the standards must evolve accordingly. The RS Council and Board are collaborating with INREV (the European Association for Investors in Non-Listed Real Estate Vehicles) and ANREV (the Asian Association for Investors in Non-Listed Real Estate Vehicles) on a Global Standards Initiative. This collaboration aims to converge standards and build bridges between regions, benefiting global investors and managers.
To learn more about the Reporting Standards or contribute to this industry-driven initiative, reach out to Marybeth Kronenwetter at [email protected].
