SCPI: These New Rules That Change Everything
The July 4 ordinance introduces measures that could help stabilize the SCPI market amid the crisis. Investors should be aware of these changes to optimize their investments.
On July 4, an ordinance concerning the regulatory framework for alternative investment funds was published in the Official Journal. This regulatory text, issued by the government, includes measures concerning real estate investment trusts (SCPIs), which are popular investment vehicles among the French. These SCPIs allow investors to invest in vehicles that hold real estate assets (offices, logistics warehouses, student housing, hospitals, etc.) for the purpose of leasing them out.
After an exceptional fundraising total of more than 16 billion euros in 2022, according to the French Association of Real Estate Investment Trusts (ASPIM), the real estate fund market—which includes SCPIs—was plunged into a crisis of confidence in mid-2023 from which it is still struggling to recover. This slump is largely due to the rapid rise in interest rates, a key factor in the real estate market. This increase has stifled the market and forced many SCPI managers to write down the price of their shares to better reflect the value of the real estate assets they hold.
Background of the Order
It was against this unique backdrop that the order was issued. Although the text makes no mention of the recent tensions in the SCPI market, certain measures could be interpreted as a response to the turbulence of the past few months. Here are three measures that directly affect investors.
SCPI Semiannual Audit Prior to the July 4 ordinance, managers revalued the properties held by the SCPI once a year, unless requested by the regulator. The ordinance now requires a semiannual valuation. Legally, the supervisory board could already adjust these values during the fiscal year based on a reasoned report from the management company, but this was rare.
Article L214-109 of the Monetary and Financial Code now provides that “valuations shall be determined and published by the management company at the end of each fiscal year and, where applicable, based on the interim financial statements for the first half of the fiscal year.”
This transparency measure has received a mixed reception from industry professionals. In a context where the SCPI market is volatile, this may make sense. But during calmer times, the usefulness of publishing SCPI net asset values twice a year is less obvious. Especially since we must not forget that these audits represent a cost to investors.
An SCPI appraisal is billed at between 300 and 800 euros per line, or between 30,000 and 80,000 euros for a fund comprising 100 properties. This can rise to 2,000 euros per line when independent appraisers are hired. While this price may seem high at first glance, it is actually too low to have a real impact on the return paid to investors.
Elimination of the Minimum Price per Share for Real Estate Investment Trusts (
) The ordinance also eliminates the minimum nominal value of an SCPI share, which was previously set by regulation at 150 euros. This minimum has now been removed from the Monetary and Financial Code. It’s a bombshell—but a positive one. Fund managers will now be able to set lower unit prices—as low as 1 euro if they choose—which will make it easier to offer periodic investment plans and dividend reinvestment.
Technically, it’s already possible to gain exposure to real estate securities for a few dozen euros a month. But this is done either through the fractionalization of SCPI shares—available only to managers who maintain their own share registers—or through fractional real estate or real estate crowdfunding, which fall outside the SCPI regulatory framework. There are certain players who, under the pretext of democratizing real estate, were in fact selling bond investments with exorbitant fees and, at times, with returns that were far too low given the actual risk involved.
New Source of Revenue
Finally, the ordinance paves the way for a new type of investment for SCPIs: the use of their rooftops or land to generate renewable energy. Article L214-114 of the Monetary and Financial Code now provides that “real estate investment companies may acquire, directly or indirectly, for the purpose of leasing, furnishings, capital equipment, or any movable property assigned to the real estate they hold and necessary for the operation, use, or exploitation of said real estate, as well as to engage in the direct or indirect acquisition, installation, leasing, or operation of any renewable energy production process, including the resale of the electricity produced.”
To be more specific, in the past, an SCPI could invest in solar panels but did not benefit from the direct revenue generated by the resale of the energy. Is this the kind of investment that could support the share price? Today, the real estate market has been so volatile that it might not have a real impact on the price. But in a slightly more normal environment, this will be an important factor.
