Turkey: Updates to the Communiqué on Real Estate Investment Funds

The Communiqué on Real Estate Investment Funds (IH-52.3) ("Communiqué") is mainly related to the (i) incorporation, operating principles, liquidation and termination provisions of real estate investment funds, (ii) issuance provisions of the participation units of real estate investment funds and their sales procedures for qualified investors, (iii) provisions as to issuance documents, and (iv) relevant disclosure processes for investors. The Capital Markets Board ("CMB") has introduced certain amendments and updates to the Communiqué, which entered into force upon publication in the Official Gazette on June 30, 2018. This article summarizes the significant features of these amendments and updates, and explains the potential legal effects:

Definition of "Real estate investment":

As per Articles 3/ (e) and 4/3 (a) of the Communiqué, the scope of what is included in the definition of a "real estate investment" has been expanded. While the previous version of the relevant definition only referred to real estate and property rights, the broadened definition also comprises the following: (a) certain real estate projects, (b) capital markets instruments issued by real estate investment companies, (c) shares of joint- stock companies whose assets continuously consist of domestic real estate investments in the ratio of at least 75%, (d) real estate certificates, (e) other real estate investment funds' participation units, (f) receivables arising from forward sales of real estate assets that belong to any portfolio, and (g) value-added tax (VAT) receivables arising from real estate investments.

Eligibility for incorporation of real estate investment funds and allowed transactions:

In accordance with Article 4/1 of the Communiqué, "real estate and venture capital portfolio management companies" are also permitted to establish and incorporate real estate investment funds.

Additionally, Article 4/3 of the Communiqué stipulates that real estate investment funds may consist of assets, rights and transactions, such as real estate investments, promissory agreements and domestic money markets. On the other hand, the Communiqué declares that loan participation notes can no longer be included within a real estate investment fund.

Disposal types over assets of real estate investment funds:

As per the amended version of Article 5/2 of the Communiqué, certain disposal types over assets of real estate investment funds (i.e., establishing pledges and providing guarantees) are no longer treated on a numerus clauses basis.

Obtaining portfolio management services:

As another novelty, Article 7/2 of the Communiqué currently stipulates that founders of real estate investment funds may receive portfolio management services from "real estate and venture capital portfolio management companies" as well, in addition to portfolio management companies and real estate portfolio management companies.

Issuance of a real estate investment fund's participation units:

As per Article 13/7 of the Communiqué, for the issuance of a real estate investment fund's participation units, the commencement date of the sale must be within three (3) months of the date that the certified issuance document is duly delivered by the founder. Otherwise, the founder must apply to the CMB within six (6) business days for liquidation of the unsold participation units of the fund.

Furthermore, according to Article 13/10 of the Communiqué, separate participation units may be generated within a real estate investment fund, by way of: (i) splitting the portfolio management fee and the marketing/sale allocation fee, or (ii) applying turnout commission to the fund. As per said Article, the turnout commission must be recorded as revenue to the fund.

Also, as per Article 13/11 of the Communiqué, if any investment agreements are discretionally signed with investors, those agreements must not include any provisions that are contrary to the real estate investment fund's bylaws and issuance documents.

Skipping the waiting period in case of material changes to a real estate investment fund's bylaws and/or issuance documents:

According to the new provisions inserted into Article 14 of the Communiqué (as paragraph 6), if there are material changes within the scope of the real estate investment fund's bylaws and/or issuance documents, the thirty-day (30) waiting period for the changes to take legal effect may be waived, provided that the substance and content of the material changes have been approved in advance by all of the owners of the fund's participation units.

Liabilities of the founders of real estate investment funds:

As per amended paragraphs 5, 8 and 9 of Article 16 of the Communiqué, the founders of real estate investment funds will no longer be liable for the following: (i) investor losses due to non-compliance with requirements concerning the procurement and safekeeping of the relevant documents, (ii) monitoring the participation units before the Central Registration Agency on an owner basis, and (iii) obtaining and safeguarding transfer documentation for participation units.

Furthermore, in accordance with Article 16/10 of the Communiqué, the transfer of participation units between qualified investors may be subject to prior approval of the founder or director of the fund, or such transfers may be restricted, provided that the details of such approvals or restrictions have been explicitly declared and specified in the relevant informational documents related to the fund.

Establishment of usufructs:

Establishing usufructs was previously allowed for the following: (i) real estates that belonged to third parties (for usufructs in favor of real estate investment funds), or (ii) real estates that belonged to real estate investment funds (for usufructs in favor of third parties). With the amended version of Article 18/1 of the Communiqué, the establishment of usufructs over the foregoing types of real estate assets is no longer permitted.

Limitations on the portfolios of real estate investment funds:

As per Article 19/l(a) of the Communiqué, a real estate investment fund may invest in shares of joint-stock companies (whose assets consist continuously of domestic real estate investments in the ratio of at least 75%), provided that such investments comprise at most 20% of the total value of the fund. Previously, there was no limitation as to the location (i.e., that they must be domestic only) of the investments of the foregoing joint-stock companies.

In addition, Article 19/1(b) of the Communiqué, which stipulated that "the total of the real estate investments (each of which exceeds 20% of the total value of the real estate investment fund by itself) shall not exceed 60% of the total value of the real estate investment fund" has been removed from the Communiqué.

Registration of certain real estate agreements with the Title Registry:

While real estate investment funds are required to register/annotate certain real estate agreements (e.g., preliminary agreements to sell real estate, etc.) with the Title Registry, if İller Bankası A.Ş (a state-owned development and investment bank) or TOKİ (Turkey's government- backed housing agency) are parties to such agreements, then the foregoing registration phase will no longer be mandatory, in accordance with Article 20 of the Communiqué.

Loan limits:

According to Article 23 of the Communiqué, a real estate investment fund may use loan facilities or interest-free financing up to the ratio of 50% of its total fund value. In case of such use, 8the owners of the participation units must be duly informed with respect to the details of the loan facility or the interest-free financing agreement.

Real Estate Value Assessments:

As per the amended version of Article 28/1 (f) of the Communiqué, year-end value assessments shall be made for all assets in the portfolios of real estate investment funds.

Disclosure through the Public Disclosure Platform (KAP):

According to the amended version of Article 35 of the Communiqué, real estate investment funds shall set up official websites on the Public Disclosure Platform ("Kamuyu Aydınlatma Platformu" or "KAP"), duly complete the summary and general information sections of their websites and duly disclose their bylaws, issuance documents, amendment texts (if any) and financial statements to the public via the KAP. Real estate investment funds that were established before the effective date of the foregoing amendment (June 30,2018) will be obliged to comply with the foregoing requirements by September 30,2018, in accordance with Temporary Article 1 of the Communiqué.


This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in September 2018. A link to the full Legal Insight Quarterly may be found here.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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