PLACES & SPACES 24_25 SPACE & <strong>IN</strong>VESTMENT Looking to Europe German investors seem to have overcome their crisis of confidence in open-ended real estate funds. The branch is registering an influx of capital once again – mainly because the product offers comparatively stable growth and a manageable degree of risk Open-ended real estate funds have bottomed out and are now once again on the up. According to the German <strong>Investment</strong> and Asset Management Association (BVI), at the end of August these products exhibited an average year-on-year return of 3.9 percent. At the end of December 2005, the average return was only 3.4 percent. High vacancy rates and falling rental income in Germany had been putting pressure on the performance of many funds since 2004. The reason cited for the recent upturn is the strong demand displayed by international investors for European and German properties. “At the moment we can achieve top results in sales,” said Reinhard Kutscher, a board member at DIFA. Owing to the rising property prices, positive developments have also been registered for existing building stocks (see interview on page 28). At the same time, open-ended real estate funds are gaining fresh impetus as a result of the difficult situation on the equity and bond markets. In view of the recent losses experienced by pension and equity funds, investors are again paying more attention to the argument that it is best to have stable value appreciation with a manageable degree of risk. The BVI reported that the sector saw inflows of capital amounting to 220 million euros in June this year and a further 83 million euros in July. In August, the sector suffered a setback when investors withdrew around 136 million euros from open-ended real estate funds. Nevertheless, a number of open-ended real estate funds still registered inflows, as the BVI pointed out in its report. Overall, capital inflows have dominated in the past three months, a development that the sector regards as a positive sign indicating that the long-awaited turnaround has begun. DOMESTIC FUNDS HIT HARD In the past, those funds which focused on Germany, and which therefore showed weaker performance, were particularly affected by capital outflows. Newer funds with an international focus, on the other hand, recorded higher returns last year and also achieved relatively high inflows of capital. The value appre- ciation of funds focusing on Germany was below average owing to stagnating rental rates and high vacancy levels as well as lower valuations. “This was because of the long-term decline on the German property markets,” said Kutscher. “It is necessary to clearly differentiate between the funds on offer, which is indeed what investors have done.” DIFA, for example, has experienced outflows primarily from its Germany-focused funds; it has seen fewer outflows from its international products. “DIFA-Global in particular continues to be in high demand,” said Kutscher. TOUGHER PROTECTION MEASURES Measured against the gratifying capital inflows over the past few months, the crisis-management strategies adopted by the capital investment companies and the implementation of reforms have had surprisingly fast results. A good 10 months have passed since, for the first time in the history of investment funds, an openended real estate fund refused to redeem its units, thereby precipitating an avalanche of withdrawals by investors. Some investors panicked, causing a total of more than 8 billion euros to be withdrawn from real estate funds, bringing funds into a liquidity crisis. Despite the legally mandated liquidity reserves, there was not enough in every case to staunch the mass exodus of investors. Fund operators responded in part with support measures for their funds; in three cases, the provision for temporary closure of a fund was made use of. In the meantime, all the funds are operating again, no investors have lost money. Last but not least, the branch mastered its worst crisis with a package of reforms. Implementation of the designated reforms began on April 1. For example, new investments in open-ended real estate funds with values of 1 million euros or more should in future automatically have a 12 month notice requirement. At the same time, the minimum liquidity level is to be doubled to 10 percent. Conversely, unit sales will be suspended if liquidity reaches 40 percent Laif/Rea of assets. Valuation experts should henceforth be appointed for a maximum of five years. Further rotation is to be achieved through Photo:
PLACES & SPACES 24_25 ABSCHNITT The European Parliament in Strasbourg: According to the German <strong>Investment</strong> and Asset Management Association (BVI), open-ended real estate funds should be able to have a Europe-wide focus in future.