Compliance February 4, 2002

Moody's Rates Real Estate

April 2, 2002 (PLANSPONSOR.com) - In a bid to boost transparency and promote increased investor confidence in the real estate investment fund industry, Moody's Investors Service launched a new rating system for private and public real estate funds.
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This new system, Moody’s Real Estate Fund Ratings, is designed for commingled open-ended and closed-ended funds, unit trusts, partnerships, joint ventures and similar funds that invest in real property and/or mortgages on real property.

The ratings will also assist investors and consultants in meeting their fiduciary responsibilities, according to a news release from the company.

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Unlike traditional ratings, Moody’s Real Estate Fund ratings do not address a fund’s ability to repay a fixed obligation, or to satisfy contractual financial obligations.

Instead Moody’s Real Estate Fund Rating is comprised of two components, Management Quality and Portfolio Investment Quality.

Management Quality

The Management Quality Rating assesses the overall quality of the organization, management abilities, capacity of the firm’s infrastructure, operational procedures, risk management and controls and financial wherewithal, and quality of client servicing, Moody’s notes.

 In this component:

  • a rating of AaaMQ indicates an exceptionally strong management
  • an AaMQ rating indicates an excellent management and control environment
  • funds rated AMQ are judged to have a good management
  • those rated BaaMQ are judged as having an adequate management environment
  • a BaMQ indicates questionable management
  • those rated BMQ are judged to be managed in a poor manner.

Ratings AaMQ through BMQ may be modified by a 1, 2 or a 3 to indicate positioning within each rating category.

Investment Quality

The Investment Quality Rating assesses the impact of macro- and micro-economic trends on real estate fundamentals, asset quality, portfolio quality, fund liquidity and performance, according to the news release.

In terms of this rating

  • AaaIQ denotes exceptional investment quality
  • AaIQ funds are judged to have excellent investment quality
  • AIQ funds are rated to have good investment quality
  • Those rated BaaIQ are judged to have adequate investment quality
  • BaIQ denotes questionable quality
  • BIQ denotes poor quality.

AaIQ through BIQ may also be modified by a 1, 2 or 3 to indicate positioning within each rating category.

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