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Regulatory and Compliance Issues: The Calm after the Storm


Third Quarter - 2014

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With new regulatory and compliance requirements becoming effective this year, 2014 was greeted with wariness, if not trepidation, among private equity real estate funds. With the end of the year at hand, however, it can be said that most firms weathered the changes well. The smaller shops wisely turned to fund administration firms, which had expanded their offerings from accounting and back-office to include compliance services. The mid-size and larger firms, of course, had the internal resources to clear the raised bar (which is not to imply that this was accomplished without some effort).

Indeed, it’s the fund administration industry that has been going through changes. The onslaught of work they received from smaller firms allowed them to quickly grow the sophistication of their offerings; as a result they are now going after—and winning—business from the midsized and larger firms. And as the market for outsourced compliance becomes both larger and broader, it is becoming an attractive target for software development firms, who are creating applications to automate elements of the compliance process.

Besides the issue of compliance itself, 2014’s regulatory changes brought the expectation that capital would become scarce for many developers, providing a wider opening for private equity firms. This may well turn out to be the case, but it’s too soon to tell. After all, the ADC loans in place were largely unaffected by the new requirements—it’s the projects originating this year that have to contend with the new reality. By the second half of 2015, however, a clear picture will emerge.

Compared to previous years, 2015 should be a quiet one on the legislative front, particularly with Republicans in control of both chambers of Congress. Instead, the spotlight has shifted to Europe, which is undergoing its own regulatory reexaminations. This suggests that the regulatory playing field will more or less level out in the short term, staving off the exodus of investment from the United States that some had feared. This leveling will be helped along by the continued strengthening of the dollar, which has been on a steady upward climb since the spring

Contact

For more information, please contact Jason Burian, partner, at jason.burian@cohnreznick.com or 312-508-5935.

Visit the Commercial Real Estate Industry Practice webpage to learn about our services.


This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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