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Summary for: Beyond buying property: A credit fund approach to Czech real estateInvesting in Czech property has, in recent years, attracted considerable interest. Yet while property values and rental income can offer returns, owning real estate comes with risks. Stalled development, loss of value due to damage or deterioration, problematic tenants, changing mortgage conditions, and difficulty selling can all pose problems for property owners.
Some investment funds, however, enable investors to benefit from real estate without being directly exposed to the responsibilities of ownership. Credit funds, such as the recently launched Crestyl Real Estate Fund, are structured to generate regular returns by channeling investments into a range of premium real estate developments in Czechia and Poland.
In doing so, the fund combines the investment potential of Czech property with a fixed-income investment strategy designed to offer greater predictability.
How does a credit fund work?
The Crestyl Real Estate Fund raises money for developments where Crestyl is both developer and owner. These include projects in major Central European cities including Prague, Brno, Warsaw and Kraków.
Investors in the fund do not own a share in those properties. The fund instead lends money towards development projects through securitized loans, with regular, contractually defined interest payments paid out to investors. This results in a stated return of 7 percent per year from an investment segment that is extremely stable but can be volatile and illiquid at times.
The structure is intended to benefit several parties: Crestyl gains the capital needed to pursue higher-value developments, local communities benefit from those developments, and investors receive regular and secured returns.
Crucially, because they do not own the properties, investors do not take on the day-to-day risks and responsibilities associated with direct property ownership. Their investments, channeled into Crestyl’s projects in the form of secured loans, are backed by guarantees from the Crestyl Group and the company’s 25-year development history.
As with any investment, the fund carries risks, including the possibility of delayed redemptions, changes in returns, or losses if the borrower is unable to meet its obligations.
Property developments backed by the fund include residential, commercial, retail and hospitality projects at various stages of development, including the mixed-use Savarin project in Prague city center, the Boka office development in Pankrác, and the Nová Amerika residential project in Czechia’s second city, Brno.
“The Crestyl Real Estate Fund operates under independent management and a board separate from the Crestyl Group’s executive structures, ensuring objective oversight,” explains Petr Klouda, fund manager at Crestyl.
“The investment is backed by guarantees from the Crestyl Group as the Crestyl Group takes the risks on itself, protecting investors from price fluctuations of the assets. Appreciation is not based on subjective ‘blind’ appraisals of property values, but on a clear, contractual interest rate,” Klouda adds.
Who can participate?
As a Czech-regulated, open-ended fund for qualified investors with oversight from the Czech National Bank, the Crestyl Real Estate Fund has a minimum investment threshold of CZK 1 million. The fund’s suitability for investors is assessed prior to investments being made.
“The fund is open to both EU and non-EU citizens residing in Czechia. The entire onboarding process, including standard anti-money-laundering checks and investment suitability questionnaires, is fully available in English,” Klouda says.
“Our fund managers provide personalized support to guide international investors through every step of the process to ensure it is as seamless as possible,” he adds.
How returns, redemptions and fees work
Another feature of the Crestyl Real Estate Fund is the relative flexibility which it affords in comparison with ownership-based real estate investment vehicles.
“Real estate is usually illiquid. Our fund, on the other hand, offers a three-month redemption period following the short initial lock-up period of one year, providing much faster access to capital for investors,” Klouda explains.
The return rate of 7 percent per year is net of management fees and structured as a “preferential return,” meaning investors are paid before the fund’s founders. The return consists of a fixed component and a variable element linked to the 3M PRIBOR benchmark. The fund is subject to a preferred corporate income tax rate of 5 percent, which is already accounted for in the target return figure.
Investors should be aware of certain limitations due to the nature of the asset class. The investment is marketed as long-term, with a recommended holding period of three to five years. An initial lock-up period means shares cannot be sold within the first year of purchase. Exit fees are then payable at a rate of 2.5 percent after the first year, 2 percent after the second year, and 0 percent after three years.
In addition to the removal of exit fees after three years, eligible Czech tax residents may qualify for an income-tax exemption after meeting the applicable three-year holding period. Individual tax treatment can vary, so investors should confirm their position with a tax adviser.
For qualified investors who want exposure to real estate without buying and managing property directly, credit funds offer an alternative route into the market. The Crestyl Real Estate Fund combines a stated annual return with access to developments in Czechia and Poland, although investors should consider the holding period, exit fees and wider investment risks before committing capital.
