Investing in real estate investment fund shares poses risks that may subject investors to losses
An investment in the shares of a real estate investment fund involves risks that may subject investors to losses (and to the illiquidity of their shares), volatility in capital markets and risks related to the portfolio’s real estate investments. Shares purchased in the Fund do not come with any guarantee from the fund manager, the investment advisor, the agents or the FGC, or any type of insurance mechanism whatsoever.
Brazil’s real estate sector is subject to vast regulation by federal/state/municipal authorities
Brazil’s real estate sector is subject to vast regulation by a variety of federal, state and municipal authorities concerning the purchase, sale, leasing, renovation and expansion of real estate property. Undertaking any property renovations and expansions may depend on obtaining specific licenses and subject to approval by government authorities and limitations on building, zoning rules and consumer protection laws and regulations. Thus, current and future laws and regulations may affect the Fund’s business and profitability.
Additionally, urban zoning and environmental protection laws may change, which could cause delays and modifications to the commercial objective for which a property was developed, affecting the Fund’s business and estimated results. Events such as these may materially impact the profitability of the Fund and the market value of the shares.
BC Office Fund portfolio is subject to fluctuations in real estate market prices
The value of the assets in the Fund’s portfolio may increase or decrease according to price fluctuations, listed market prices and any appraisals made pursuant to applicable laws and/or the Fund’s bylaws. Decreasing property values may affect the Fund’s profits from any sale of the properties and rental income, as well as the trading price of the shares.
The value of commercial real estate and real estate in general has soared in recent years, a trend that the Fund cannot guarantee will continue in the coming years. Between 2004 and 2011, according to CBRE, the price per square meter for commercial real estate in São Paulo and Rio de Janeiro increased from R$63.0 to R$145.0 and from R$72.0 to R$145.0, or 230.15% and 201.38%, respectively. If this scenario changes, the profitability of the Fund, and, consequently, the value of the shares could be affected.
If BC Office Fund can’t renew lease agreements with current tenants, the Fund could be affected
BC Office Fund’s operating revenue projections are based on the terms of lease agreements. If current tenants decide to terminate or not renew their leases, or only agree to renew at lower-than-expected rates, forecasts may not be fully met, affecting results.
Also, if a lease agreement is terminated or not renewed, the Fund may face difficulties in renting a vacant property at similar/better terms than with the previous tenant or within a desirable timeframe. In such cases, BC Office Fund’s business and results may be affected.
Amount paid out monthly to investors will entirely depend on Fund’s continued profitability
An investment in shares of real estate investment funds is an investment in variable revenue securities, meaning payouts to shareholders will depend on the successful management of the Fund’s portfolio investments. At present, amounts payable to shareholders will directly depend on revenue generated from lease agreements, sale of real estate properties and rental of properties to leaseholders, less all costs incurred by the Fund. As such, the Fund may have to devote a large chunk of its cashflow to paying down obligations, thereby reducing available cash payable to shareholders – which, in turn, may affect the market value of the shares.
The investments made by the Fund are not backed by guarantees, of the fund manager, investment advisor, agents, third parties, any insurance mechanism or Credit Guarantor Fund (Fundo Garantidor de Créditos, or FGC), to reduce or eliminate the risks to which it is subject and, as a consequence, to which the shareholders are also subject.