Central Bank of Ireland Consultation on Real Estate Funds – Finance and Banking


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On November 25, 2021, the Central Bank of Ireland (“central bank“) published a consultation paper (“CP145“) on macroprudential measures for the real estate fund industry. The publication of CP145 follows the recent regulatory focus on the Irish real estate fund industry, examining leverage and liquidity mismatch as potential sources of vulnerability that could affect the resilience of this form of financing in the future The Central Bank is of the opinion that in the absence of policy interventions, the real estate fund industry could react to future adverse shocks by selling real estate assets over a short period of time, which could amplify adverse shocks to the commercial real estate market and the economy at large.

The Central Bank proposes the introduction of leverage limits on Irish domiciled funds which invest more than 50% directly or indirectly in Irish real estate assets (“Impacted funds“) and additional guidance to limit liquidity asymmetry.


The Central Bank has proposed the introduction of a leverage limit of 50% for the funds concerned, which would be imposed through existing regulations under the Irish transposition of the Fund Managers Directive. ‘alternative investments (“AIFM“), in accordance with the European Securities and Markets Authority (“ESMA“) guidelines.3 The leverage limit will be determined by the ratio of total assets to total liabilities (but PC 145 specifies that the limit can be issued as any combination of the four separate definitions of leverage according to the relevant ESMA guidelines). in practice, this would affect AIFs of qualified investors (“QIAIF“) meeting the real estate exposure criteria and currently having a leverage effect above this level. AIF of retail investors (“RIAIF“) would not be impacted as they are currently covered by an existing leverage limit of 30% under the AIF regulation of the Central Bank.

The Central Bank will review the use of leverage by affected funds as part of its annual review of funds and on the basis of reports received from those funds. When, during this review, the Central Bank identifies relevant Funds with leverage levels near or above the 50% limit, these funds will receive notices confirming the application of an effect limit of specific lever.

The Central Bank may temporarily remove the leverage limit in the event of adverse shocks in the commercial real estate market. The Central Bank would also have the option of tightening the limit if market developments indicated that this was appropriate.

Transitional provisions

The Central Bank recognizes that existing Relevant Funds with leverage levels exceeding the leverage limit will need time to comply in order to ensure that the leverage reduction is carried out in an orderly manner. A three-year transitional period is proposed. The relevant Funds will be allowed to design their own leverage reduction plan in a gradual and orderly manner. The central bank may impose individual intermediate limits (on a trajectory towards 50% of total loans relative to the total value of assets) during the transition period.

All new affected Funds will be subject to the leverage limit at the time of authorization.

Guidance on liquidity asymmetry

As part of the AIFMD, a manager must ensure that the investment strategy, liquidity profile and repayment policy of the AIF it manages are consistent. The Central Bank proposes to introduce additional guidelines for the Funds concerned on aligning their repayment terms with the liquidity of their assets. The Central Bank expects the delay between when investors are required to submit a redemption request and when the funds are expected to pay these investors.

Affected fund managers will be required to take into account the liquidity profile of assets under normal and strained market conditions when determining repayment terms.

Where a relevant Fund is an open-ended fund with limited liquidity, the Central Bank has suggested a liquidity period of at least 12 months, which it believes should help ensure that the terms of repayment, including Notice periods and settlement periods, of the relevant Funds The funds align with the liquidity of the assets held under normal and exceptional circumstances. The Central Bank notes that such a proposal would potentially impact 48 real estate funds (which represents less than a third of the number of authorized real estate funds) which would have to lengthen their liquidity periods.

The Central Bank proposes that the existing restricted funds make the necessary changes to their structure and to the documentation of the funds “as soon as possible”. New affected funds are expected to comply with the draft guidelines from the date of authorization.

Next steps

The consultation period will end on February 18, 2022 and the Central Bank will then consider all comments submitted. No further indication is given in the consultation document as to when the changes will be introduced.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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