The great €18.4bn German open-ended fund liquidation

A flood of liquidations of German open-ended (GOE) funds over the next four-and-a-half years will see as much as €18.4bn in European real estate come to market in forced sales, as the end of the country’s open-ended fund market nears.

Restrictive legislation governing GOE funds presented as draft law in July was seen “as the end of open-ended property funds” in Germany.

The incoming framework – the German Capital Investment Code (Kapitalanlagegesetzbuch) – “banishes the creation of new open-ended property funds, whether they are public or special funds,” wrote DTZ its report entitled, German Open Ended Funds: Liquidation creates €20bn of opportunities.

As a result, 13 GOE funds have confirmed their intention to liquidate and five more funds are still in the midst of a redemption freeze, with staggered expiries over the next eight months from next month to June 2013.

An estimated €18.4bn in commercial real estate assets will come to markets with the vast majority of stock European, said DTZ Research, as a wave of staggered fund liquidations are required to be wound-up by April 2017.

The liquidation process now engaged by the GOE funds will provide huge investment opportunities for opportunistic investors over the coming four-and-a-half years.

“The main question is now to define if the local market can absorb these future sales without any negative impact on the prices,” wrote DTZ in the report co-authored by researchers Ivan Biojo, Ursula-Beate Neisser and Magali Marton.

Forced sales by GOE funds will represent 8% of the annual volume of investment in Europe with core markets such as Germany, UK and France showing a 5% ratio, according to DTZ, while Southern Europe and Benelux are far above at 12% and 29% respectively.

“In this context, we expect to see a decline in capital value in these two regions that will face an ‘over-supply’ of investment opportunities,” wrote DTZ.

Magali Marton, head of CEMEA Research at DTZ and author of the report, said: “The key question is whether local markets can absorb these future sales without a negative impact on pricing. We estimate that forced sales in Europe between now and April 2017 will account for €18.4bn.

“Furthermore, GOE Funds forced sales will represent 8% of European annual investment volumes with core markets including Germany, UK and France showing a 5% ratio. In Southern Europe, and Benelux these sales represent a more significant 12% to 29% ratio respectively. As a result, targeted pricing will be more difficult to achieve in these two regions.”

All properties that are not sold within required period will transferred to Germany’s Depotbank, a custodian for unsold properties, which will then complete the liquidation process.

DTZ counted 612 properties around the world are held by GOE funds “in trouble”, defined as currently in liquidation, having announced their liquidation or in freeze of redemption.

Around 90% of the total is located in Europe, with 7% in North America, 3% in Asia and two assets in South and Central America, according to DTZ.

These portfolios account for over 9m sq m of leasable space of which 8.2m sq m is located in Europe.

Moreover, 113 assets representing an additional volume of 1.4m sq m could be released if the five funds currently in freeze of redemption announced their liquidation. These additional portfolios to be sold have been estimated at a value of €1.4bn and they are mainly located in Europe.

The office sector is the favoured property type across the portfolio of GOE Funds in liquidation; it accounts for 6m sq m of leasable space on a global basis. Europe concentrates the largest part of office assets held by GEO Funds with 5.2m sq m identified.

Office assets located in the United States represent a further volume of 800,000 sq m.

The retail sector ranks second position in GOE Fund allocation with 1.6m sq m of space. Once again, the majority of these assets are located in Europe, with 1.3m sq m. The remaining 200,000 sq m is located in the US.

Magali continues: “Predicting the market participants of these forced sales by GOE Funds is always difficult.

“In this continuing uncertainty, investors operate with a high level of selectivity and a clear focus on the highest quality, most liquid assets in the core markets. We expect the same approach to opportunities presented to the market by GOE Funds.”

About CoStar News

Finance Editor, CoStar News
Gallery | This entry was posted in Fund Management, Market Trends, Merger & Acquisition, Private equity real estate, Refinancings and tagged . Bookmark the permalink.

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