Glimmer of hope for German property Spezialfonds

The latest rumours from Berlin suggest the proposal to ban new open real estate Spezialfonds in Germany will not be accepted by the legislator after all.

Germany’s real estate association Zentrale Immobilien Ausschuss (ZIA) said in a statement the law would not come into effect in its current form.

The proposal to prohibit open property Spezialfonds was made by Germany’s Ministry of Finance this summer as part of adopting the contentious Alternative Investment Fund Managers Directive to local law.

According to the proposal, managers would no longer be able to establish new open real estate Spezialfonds. Existing funds would be subject to a “grandfather clause”, under which the old rules would continue to apply.

The country’s trade body and its leading real estate managers, such as Universal, were strongly opposed to the ban, noting that Spezialfonds were in great demand and posed no threat to investors.

In the past decade, fund volumes of property Spezialfonds more than quadrupled, from €8bn to €34bn.

With interest rates in Germany at or near all-time lows, investors need the stable returns from real estate investments.

Additionally, the legal framework of the Spezialfonds structure makes it possible to invest for insurers affected by Solvency II, which prohibits investment in closed-ended alternative funds.

Thomas Richter, CEO of Germany’s trade body Bundesverband Investment und Asset Management (BVI), says: “These products never caused problems. They are extremely popular with institutional investors.”

Market practitioners were concerned that as a consequence of the ban, investors would be driven away from the local market to Luxembourg and Ireland.

Richter said: “Legislators in these countries are wise enough to continue to allow the set up of open real estate special funds, especially since the AIFM-Directive does not give any reason to ban these types of funds.”

But the latest news from Berlin suggests the local legislator is on the same page as Germany’s trade representatives.

Richter says the BVI is confident that the legislator will not accept the Ministry’s proposal to prohibit setting up open real estate special funds for institutional investors.

Meanwhile, real estate managers have continued launching new real estate products in response to demand for the asset class.

Universal recently brought a new property Spezialfonds to the market, and plans further launches. Aberdeen Asset Management has also recently set up a residential property fund investing in Germany.

But the back and forth discussions in Berlin are leading managers to scratch their heads over the possible options.

Universal, as a large manager with global capabilities, has simply chosen to launch its new fund on the existing Luxembourg platform, without waiting for the final verdict.

Other managers, such as Warburg – Henderson, a Munich-based joint venture between property manager Henderson and independent private bank M.M.Warburg, expect the industry to “adopt a new closed ended real estate Spezialfonds” if the legislative change goes ahead.

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