A real-estate fund pools money from many investors so that a professional manager can buy, let and maintain properties on their behalf. Investors share the net rental income and any change in the value of the buildings, after costs and after the cost of any borrowing. The value of a unit is not a live market price. It is an estimate based on valuations, normally prepared by an independent valuer, and getting money out depends on the redemption rules of the fund. When the fund is structured as an ELTIF, EU rules also set limits on concentration, borrowing and redemptions.
How is a real-estate fund structured?
Most real-estate funds follow the same basic chain.
- Investors subscribe for units or shares and receive a share of the fund's net assets.
- The fund buys properties or interests in property companies. Under the ELTIF Regulation, a fund of this kind invests in real assets, which include buildings and land.
- A manager decides what to buy, how to finance it, how to let it and when to sell. In the EU, the manager of an ELTIF is an authorised alternative investment fund manager (AIFM) subject to Directive 2011/61/EU, including its rules on conflicts of interest.
- A depositary safeguards the fund's assets and oversees certain duties of the manager. See the glossary entries on the AIFM and the depositary.
- Property managers, valuers, auditors and administrators provide services to the fund, and each of them is paid out of the fund.
Why this matters: an investor does not own a flat or an office. An investor owns a unit in a fund that owns assets, and the rights that come with that unit are defined in the fund's statute and prospectus.
How does a real-estate fund make money?
Returns come from two sources, and they behave differently.
Income. Tenants pay rent. After property operating costs, management and administration costs, fees and interest, what is left can be distributed to investors or reinvested, depending on the fund's policy. Income depends on how well the buildings are let, on the length and terms of leases, and on whether tenants pay.
Change in value. The value of buildings rises or falls with market conditions, location, condition, lease profile and interest rates. This change is realised only when a property is sold, but it is reflected earlier in the fund's reported value through periodic valuations.
The two can diverge. A fund can pay steady income while property values fall, or can show rising values with little current income. When you read a performance figure, always ask whether it includes income, value change or both, and whether it is before or after costs.
How are the properties valued, and why is NAV an estimate?
The net asset value (NAV) is the value of everything the fund owns minus what it owes, usually shown per unit. For listed shares, a market price is visible every second. For buildings, there is no such price, because each property is unique and trades rarely.
So funds rely on valuations. A valuer who is independent of the manager appraises each property using methods such as comparing recent sales of similar buildings, or estimating what the expected rental income is worth today. The result is an informed opinion, not a transaction. Two valuers can reach different figures for the same building, and the result can lag the market because it depends on past evidence.
Practical consequences:
- NAV changes in steps, when new valuations are booked, rather than continuously.
- A stable NAV does not prove that values are stable. It can mean that valuations have not yet caught up.
- When a property is finally sold, the price can be above or below the last valuation.
- Investors who buy or redeem at NAV can gain or lose relative to the true value at that moment, which is one reason funds restrict the timing of redemptions.
The valuation glossary entry and NAV entry give short definitions. Check the fund's documents for who the valuer is, how independence is ensured and how often properties are revalued.
What rules apply when the fund is an ELTIF?
Real estate is one of the main asset types an ELTIF can hold. The following points come from the ELTIF Regulation as amended by ELTIF 2.0 (Regulation (EU) 2023/606, applying from 10 January 2024).
- Eligible assets. Under Article 13, an ELTIF invests at least 55 % of its capital in eligible investment assets.
- Concentration. No more than 20 % of capital may be placed in a single real asset. A fund holding one dominant building would need to stay within this limit. Diversification still depends on the fund's own policy, since 20 % is a ceiling and not a target. See diversification.
- Smaller assets. The earlier requirement that each real asset be worth at least EUR 10,000,000 was removed, so a fund may hold smaller properties.
- Borrowing. Under Article 16, an ELTIF offered to retail investors can borrow cash up to 50 % of NAV. A fund offered only to professional investors can borrow up to 100 % of NAV. Previously the limit was 30 % of capital.
- Redemptions. Article 18 sets the default that investors cannot ask for redemption before the end of the fund's life. Redemptions during the life are allowed only if the rules of the fund permit them and the conditions of Article 18(2) are met.
These are legal ceilings and conditions. The fund's own policy can be stricter.
How does leverage change the picture?
Many property funds borrow to buy more than investors' money alone would pay for. Leverage works in both directions. If the property rises in value by more than the cost of the loan, investors gain more. If values fall, or rent falls, or interest costs rise, the loss is larger because the lender is repaid first.
A simple illustration, not data on any fund: a fund holds one building financed partly by investors and partly by a loan. The loan must be repaid in full whatever the building is worth, so any fall in the building's value comes entirely out of the investors' part. Investors' share therefore falls by a larger percentage than the building itself, before costs. The same arithmetic applies to gains. This is why the borrowing limit and the interest rate and maturity of the loans are among the first things to check. The leverage glossary entry has a short definition.
What costs does a real-estate fund have?
Costs sit at several layers, and not all are visible in one place.
| Layer | Examples | Where to look |
|---|---|---|
| Investor level | Entry fee, exit fee | KID, prospectus |
| Fund level | Management fee, administration, depositary, audit, valuer, performance fee | KID, statute, annual report |
| Transaction level | Costs of buying and selling properties | KID, annual report |
| Property level | Maintenance, insurance, property management, vacancy, taxes on the property | Annual report, fund documents |
| Financing level | Interest and loan fees | Annual report, borrowing policy |
Costs reduce income and compound over time, because each year's fee is taken from a base that would otherwise have kept growing. The fees guide explains each type and includes a hypothetical worked example, and the fee impact calculator lets you test your own assumptions.
Can I withdraw from a real-estate fund at any time?
Not as a rule for an ELTIF. Buildings cannot be sold in a day without risking a weak price, so the law protects the portfolio and the remaining investors by limiting exits.
- By default, there is no redemption before the end of the fund's life (Article 18(1)). The rules must state the end date and can allow a temporary extension.
- Redemptions during the life are possible only if the fund's rules allow them and, among other conditions, they are not granted before the end of a minimum holding period, the manager can demonstrate a suitable redemption policy and liquidity management tools to the competent authority, and redemptions are capped at a percentage of liquid assets. If requests exceed the cap, they are reduced pro rata with equal treatment of investors (Article 18(2)).
- Investors always have the option of a cash payout. Payment in kind is possible only if the rules offer it, the investor requests it in writing and there are no restrictions on transferring the assets (Article 18(4) and (5)).
- The rules must not prevent investors from freely transferring their units to third parties other than the manager. Matching of units may be offered but does not ensure an exit (Article 19, and Article 30(2)).
Other, non-ELTIF property funds may follow different redemption rules, so read the statute of any fund you consider. The liquidity guide explains each mechanism.
What are the main risks and limits?
- Capital loss. Property values and rents can fall, and you can get back less than you invested.
- Valuation risk. Reported NAV can differ from achievable sale prices.
- Liquidity risk. Exit may be unavailable or limited for years.
- Leverage and interest rates. Debt magnifies losses and refinancing can become expensive.
- Tenant and vacancy risk. Income depends on tenants who may leave or fail to pay.
- Concentration. A fund focused on one sector, city or tenant is exposed to its problems.
- Costs. Several layers of fees reduce what reaches you.
The risks guide deals with each in detail.
How can I use this to assess a fund?
Ask five questions. What exactly does the fund own, and how concentrated is it? Who values the properties, and how often? How much does it borrow, and on what terms? What are the full costs in the KID and the statute? When and how could I exit, and under what limits? If the documents do not answer clearly, treat that as information in itself.
Frequently asked questions
How does a real-estate fund make money?
It earns rent from tenants and may benefit from rising property values, minus operating costs, fees and interest. Rental income is distributed or reinvested according to the fund's policy, while changes in value are realised only when properties are sold, although they appear earlier in the reported NAV.
Who values the properties in a fund?
Normally an independent valuer who is separate from the manager appraises the properties, and the manager and depositary have duties around the valuation process. The valuation is an informed estimate, so the documents of each fund should name who does it and how often.
Can I withdraw from a real-estate fund at any time?
For an ELTIF, the default is no. Investors cannot ask for redemption before the end of the fund's life unless the rules of the fund allow redemptions during the life and the conditions in Article 18(2) are met, including a minimum holding period and a cap on redemptions.
What costs does a real-estate fund have?
Entry and exit fees, management and administration fees, possible performance fees, transaction costs, property operating costs and interest on loans. The KID summarises costs in a standard format and the statute and annual report give more detail.
Why can the unit value stay stable when the market falls?
Because properties are revalued periodically and valuations rely on past evidence, the reported NAV can lag the market. A stable value is not proof that the buildings would sell at that price today.
Primary sources
- Regulation (EU) 2015/760 on European long-term investment funds, EUR-Lex (2026-10-01)
- Regulation (EU) 2023/606 amending Regulation (EU) 2015/760 (ELTIF 2.0), EUR-Lex (2026-10-01)
- Directive 2011/61/EU on alternative investment fund managers (AIFMD), EUR-Lex (2026-10-01)
General information. Not investment advice or a suitability assessment.
