For IFAs and RIAs, recommending a real estate aif is not just an allocation decision—it is a fiduciary responsibility. Unlike listed products, real estate AIFs are opaque, illiquid, and manager-driven. A weak due diligence process can expose advisors to reputational and client-outcome risk.

As the real estate AIF India market matures, product differentiation is no longer about headline IRR. It is about governance quality, alignment of interest, valuation discipline, and conflict management within a real estate Category II AIF.

This blog provides a 15-question due diligence checklist designed specifically for IFAs and RIAs evaluating property-backed AIF offerings. The checklist is practical, actionable, and suitable for conversion into a downloadable PDF for client and internal use.

Why Due Diligence Is Critical in Real Estate AIFs

A real estate aif is fundamentally different from mutual funds or PMS products. Capital is locked in, reporting is periodic, and outcomes are heavily dependent on execution.

For advisors, due diligence must go beyond marketing decks and focus on process risk rather than return projections.

Key reasons due diligence matters:

• Illiquidity amplifies mistakes
  Once capital is committed to a real estate Category II AIF, exit options are extremely limited. Poor manager selection cannot be corrected mid-cycle.
  
• Manager discretion drives outcomes
  In real estate alternative funds, the fund manager’s judgment on entry, structuring, and exit timing directly impacts investor returns.
  

Sponsor & Fund Manager Due Diligence (Questions 1–5)

This section focuses on the people and platform behind the real estate aif.

Question 1 – What Is the Sponsor’s Track Record Across Cycles?

Past performance alone is not sufficient. IFAs should evaluate whether real estate fund managers have managed capital across multiple real estate cycles.

Look for:

• Experience in both expansion and slowdown phases
  
• Demonstrated capital protection during stressed markets
  
• Evidence of disciplined exits, not just successful entries
  

Question 2 – How Much Sponsor Capital Is Co-Invested?

Alignment starts with capital at risk.

• A meaningful co-investment indicates confidence in the strategy
  
• Low or symbolic co-invest raises alignment concerns
  

In real estate AIF India, strong platforms typically commit 5–10% of total fund size.

Question 3 – Is the Team Stable or Deal-by-Deal Dependent?

Execution risk increases when teams change mid-fund.

• Assess attrition at senior and deal-lead levels
  
• Understand whether investment committees are individual-driven or process-driven
  

Consistency in real estate fund managers improves predictability.

Question 4 – Is Decision-Making Centralized or Committee-Led?

A centralized decision model can be fast but risky.

• Committee-led structures reduce key-person risk
  
• Documented approval frameworks improve governance
  

This is especially critical in property-backed AIF strategies.

Question 5 – What Is the Sponsor’s Conflict History?

Advisors should ask directly about past conflicts.

• Related-party transactions
  
• Developer affiliations
  
• Side-letter preferential terms
  

Transparency here is non-negotiable in a real estate aif recommendation.

Fund Structure & Economics Due Diligence (Questions 6–10)

This section evaluates how investor capital is treated inside the real estate Category II AIF.

Question 6 – What Is the Fee Structure and Waterfall Design?

Fee structures influence manager behavior.

• Management fees during deployment vs post-deployment
  
• Performance fees linked to IRR or equity multiple
  

Well-designed waterfalls ensure real estate alternative funds prioritize investor capital recovery before upside participation.

Question 7 – Are Fees Charged on Committed or Deployed Capital?

This directly impacts net returns.

• Fees on committed capital increase drag during slow deployment
  
• Deployed-capital-based fees align better with execution discipline
  

IFAs should model this carefully for real estate AIF India allocations.

Question 8 – What Is the Fund’s Drawdown and Deployment Discipline?

Poor deployment discipline leads to cash drag.

• Assess average drawdown timelines
  
• Review capital call notice periods
  

A disciplined real estate aif avoids rushed or forced deals.

Question 9 – How Are Expenses Allocated Between Fund and SPVs?

Hidden costs often sit at SPV level.

• Legal, diligence, and monitoring fees
  
• Developer-related expenses
  

Clear expense allocation policies are essential in property-backed AIF structures.

Question 10 – Are There Clear Exit Timelines and Extensions?

Exit ambiguity is a major red flag.

• Original fund tenure vs extension rights
  
• Investor consent requirements
  

A strong real estate Category II AIF defines exit pathways upfront.

Asset, Valuation & Risk Due Diligence (Questions 11–15)

This final section focuses on capital protection and reporting integrity.

Question 11 – What Is the Valuation Policy and Frequency?

Valuation quality affects investor trust.

• Independent valuers vs internal models
  
• Quarterly vs semi-annual updates
  

Conservative valuation policies improve credibility of real estate alternative funds.

Question 12 – How Is Downside Risk Structured?

Advisors should look beyond return scenarios.

• Security cover and charge ranking
  
• Escrow mechanisms and cash-flow controls
  

Strong downside frameworks distinguish mature real estate fund managers.

Question 13 – How Are Conflicts of Interest Managed?

Conflicts are inevitable but must be governed.

• Clear disclosure standards

• Independent approval for related-party deals
  

Robust conflict clauses are essential in any real estate aif.

Question 14 – What Is the Exit Decision Authority?

Who decides when to exit?

• Fund manager discretion vs investor committee
  
• Minimum return thresholds before exit
  

Exit discipline drives realised returns in real estate AIF India.

Question 15 – What Reporting Do Investors Actually Receive?

Reporting quality affects advisory comfort.

• Asset-level updates
  
• Construction, sales, and cash-flow milestones
  

High-quality reporting strengthens advisor confidence in property-backed AIF recommendations.

How IFAs Should Use This Due Diligence Checklist

This checklist is designed to be:

• Used during fund manager meetings
  
• Converted into an internal IC evaluation template
• Shared as a downloadable PDF with clients for transparency
  

Using a structured checklist improves recommendation defensibility for real estate aif products.

Conclusion – Strong Due Diligence Is Non-Negotiable

In a growing but still opaque real estate AIF India market, advisors cannot rely on brand names or past returns alone.

A disciplined, repeatable due diligence framework helps IFAs and RIAs:

• Reduce manager risk
  
• Improve client outcomes
  
• Strengthen long-term trust
  

Before recommending any real estate Category II AIF, these 15 questions should be answered clearly, documented formally, and revisited periodically. In real estate investing, due diligence is not a one-time task—it is an ongoing responsibility.