Illustrative imageA common question among beginners is whether to choose a property-owning (“equity”) FII or a debt-focused (“paper”) FII. Both operate in Brazil's real estate investment fund market, but their income sources, risks, and sensitivities can differ. Neither category is universally better: the fund's holdings and strategy matter most.
What are equity FIIs?
These funds generally invest primarily in physical properties, such as warehouses, offices, shopping centers, and other developments. Revenue may come from rent and property sales.
What to look for
- Property locations, condition, and diversification.
- Physical and financial vacancy rates.
- Tenant profiles, lease terms, and rent adjustments.
- Maintenance expenses and capital spending needs.
What are paper FIIs?
These funds generally invest in securities and credit claims tied to the real estate sector, including Brazilian real estate receivables certificates (CRIs). Cash flows depend on the terms of each transaction and the creditworthiness of its borrowers.
What to look for
- Benchmark indexes and asset maturities.
- Credit risk and borrower concentration.
- Collateral, subordination, and deal structure.
- Potential renegotiations or defaults.
What about hybrid funds?
Hybrid funds may invest in both physical properties and financial instruments. The category name does not replace reviewing the latest portfolio, which can change within the fund's rules.
Quick comparison
| Feature | Equity FII | Paper FII |
|---|---|---|
| Typical focus | Physical properties | Real estate credit and securities |
| Risks to examine | Vacancy and property-related risks | Credit risk and security structure |
| Key documents | Property and lease reports | Credit portfolio reports |
Key takeaway
To compare an equity FII with a paper FII, start with investment policy and asset quality, rather than advertised distributions. Brazil's B3 exchange (in Portuguese) explains the range of assets FIIs can hold.