This content is from: Local Insights

Colombia: Introducing RECIFs

Luis Gabriel Morcillo-MéndezLyana De Luca
A new collective investment scheme for real estate investments was recently created to manage and develop real estate projects in Colombia. Foreign real estate managers now have the opportunity of creating this type of vehicle in Colombia to be managed from their countries of domicile (without requiring local licensed presence but acting in cooperation with a local fiduciary entity or stock broker that remains liable before the superintendence of finance for the fund's investments).

Decree 2142 of 2013 introduced the Real Estate Collective Investment Funds (RECIF), which are closed-end investment collective vehicles that hold at least 75% of their total value in real estate assets. This is a break-point in the local industry. Since 2007, real estate funds have been incorporated under the form of private equity funds (fondos de capital privado) managed by a local administrator and a general partner, which could be either a local or foreign unregistered entity. RECIFs are a separate investment vehicle with specific requirements in governance and managing structure.

In fact, Decree 2142 established that the RECIFs must have a local manager, who must be a supervised and registered entity. They may also have an external manager, who can be either a local supervised and regulated entity or an unregistered foreign entity. The foreign external manager will be hired directly by the local manager through a private agreement. In all cases, the responsibility regarding investment decisions and the management of the real estate investment collective fund will remain in head of the local manager.

In the case of external managers domiciled abroad, the local regulations state that it must be a foreign entity that, under the regulations of its domicile, is permitted to manage real estate assets and real estate investments.

This is a solid opportunity for foreign real estate managers, since they are not obliged to be a registered entity. Colombia's 4.2% third quarter GDP growth was clearly a result of the 12.7% GDP increase in the construction and real estate sector. This tendency has been consistent through 2014, and clearly shows that this sector will become increasingly important in attracting investors and managers to Colombia.

Luis Gabriel Morcillo-Méndez and Lyana De Luca

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