Products October 12, 2002

Moody's To Rate Real Estate Offerings

December 10, 2002 (PLANSPONSOR.com) - Moody's Investors Service has developed and published a methodology for assigning real estate fund ratings, providing institutional investors with insights into the portfolio quality and strength of the investment manager.
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In a press release Moody’s notes that it has finalized its methodology based on significant market feedback, including input from pension fund investors, pension fund consultants, and investment managers. Those ratings are available for a cross-section of real estate investment funds, including:

  • open-ended and closed-ended funds,
  • separate accounts,
  • opportunity funds,
  • unit trusts,
  • partnerships, and
  • joint ventures.

According to Moody’s senior vice president Arlene Isaacs-Lowe, “The aim of Moody’s real estate fund ratings is to substantially reduce the level of investor concern about transparency by providing an independent and standardized approach to assessing the qualitative and quantitative aspects of real estate funds.”

Non-Compete Cause?

However, Moody’s emphasized that these ratings are not intended to compete with or substitute for the existing methods of evaluating whether a fund is appropriate for a specific investment allocation strategy.

Moody’s notes that the management quality (MQ) component of the rating is an assessment of the overall day-to-day and long-term management issues associated with the organization, which takes into account the entity’s management abilities and operational practices. The key factors considered by Moody’s here are the capacity of the firm’s business infrastructure, risk management and controls, operational procedures, management abilities, financial resources, quality of client servicing, and the overall quality of the organization.

Additionally, the investment quality (IQ) component assesses the quality of the properties, including asset age and location, tenant characteristics and property mix. The main factors Moody’s considers here are the impact of macro- and micro-economic trends on real estate fundamentals, asset quality, portfolio quality and the fund’s liquidity profile and fee structure.

Report Cards

Prospective ratings for funds being launched will be designated with a (P) modifier, which will be removed as investments are made. The rating will then be adjusted to reflect the quality of the formulated portfolio.

A copy of the report “Real Estate Fund Ratings: Enhancing Transparency and Comparability,” is available at www.moodys.com/banking under “Rating Methodologies.”

Moody’s real estate fund ratings were launched in March 2002 in Germany, where Moody’s rates 16 real estate investment funds and 10 fund managers.

To view a list of Moody’s existing Real Estate Fund Ratings, please click on this link: www.moodyseurope.com.

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