91 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE ment, market impediments, regulatory complexities, and informality in Morocco’s real estate sector. One large inherent risk to the performance of OPCIs is liquidity. While the OPCI itself is a means of creating liquidity from more illiquid real estate, the underlying assets are still just that: illiquid. The concern with liquidity stems from the fact that if conditions with underlying real estate holdings deteriorate, then the offloading of such assets is increasingly difficult with the time it takes to close property deals. According to Bank Al-Maghrib’s real estate price index, the transaction volume for professional use land dipped heavily from Q1 to Q2 of 2023. These transactions, which covered data relating to both commercial premises, such as shopping centers or stores and offices, dropped 16.9%. At the same time, the overall transaction volume for professional use land fell 3.2% from Q2 of 2022 to Q2 of 2023 (Bank Al-Maghrib, 2023). Declines in transaction volume are not inherently bad for the REITs themselves, because such companies are expected to retain investment properties for extended periods of time to receive specific tax benefits. What this could signal, however, is a potential slowdown in market expansion, ultimately stifling the lifeblood of the OPCI. That said, underlying assets in an OPCI are protected in that deteriorations in real estate values tend to be slow moving, allowing such vehicles to prepare and adjust accordingly. The factor of leverage (amount of debt) within an OPCI is also of potential concern as it pertains to financial performance. According to Article 15 of the legal underpinnings behind OPCIs, the holding company can take on debt equal to 40% of the value of real estate assets within the structure (Moroccan Capital Market Authority, 2022). This leverage may serve to boost return on investment during high-performing years but also may hamper the funds as an added interest expense on the income statement during periods of weak performance. This is due to the leverage effect, wherein debt serves to increase the return on equity of an investment greatly when earnings are high, but interest expenses tend to burden a firm when earnings are low. The leverage, then, serves to exacerbate losses, with servicing and interest fees becoming a major obligation for the OPCI itself. This inherent risk with debt could affect the attractiveness of investing in OPCIs. The interest rate environment is key when investing in property. Agreements for an OPCI to purchase property often take time to negotiate and settle. During this period, interest rates are subject to fluctuation based on market conditions—these contracts are subject to a great deal of variation, which can severely impact a project’s profitability. In 2023, core inflation in Morocco was pushed to 8.5% (World Bank, 2023). The average inflation in 2023 came in at around 6.1%, down from the prior year’s 6.6%. As inflation rates were indeed lowering, Bank Al-Maghrib maintained its benchmark rate of 3% (Eljechtimi, 2023). While seeing a dip to around 1.5% in 2020 due to COVID-19, this rate has been largely kept the same over the past two decades (Trading Economics, 2023). Maintained stability in rate environments is a strong point for real estate, as lending rates can be better forecasted into investment decisions for OPCIs. The more recent hike to 3%, however, could cause some short-run issues for OPCIs in terms of lending agreements and the profitability of projects moving forward. Lending rate surveys conducted by the central bank depict rates for real estate reflecting this pattern, with a decline over the period 2010 to 2017 but an incline in mortgage rates from 2020 to 2023 (Bank Al-Maghrib, 2024). A lower and more stable rate environment is preferred for OPCIs, as it can improve project profitability. In addition to macroeconomic rate environments, a major cornerstone by which individual impact can be measured is the investment decisions by pension funds and insurance companies in these alternative investments. These large institutional investors represent major agents working on behalf of Moroccan individuals, thus factoring heavily into the con- versation regarding alternative investments such as OPCIs. Amid lackluster performance by traditional investments within the country, the focus of these institutions has shifted to the realm of alternative investments in an effort to boost returns. Research regarding alternative investments and institutions’ sentiment toward them has shown that proper valuation and management, along with the relative lack of experience with these instruments, are the two main barriers deterring this large source of capital from entering the market. This may be the case for traditional alternative investments, but OPCIs are far more liquid in nature than typical real estate investments, and they are also highly diversified (Chiboub & Benjelloun, 2020). Hence, these investment vehicles are showing promise for increased individual impact, although only time will tell if these investments become a bigger player in the pension fund and insurance company investment strategy. OPCIs also face immense market challenges as a product of Morocco’s country-wide economic performance. The main concern for a developing
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