German property funds start to reopen as pressure eases
German open-ended property funds are set to turn the corner “earlier than expected”, eight months after funds holding half the assets in the sector stopped investors from withdrawing their money, according to analysis by a property services company.
The sector has been under significant pressure since October, when 12 funds with about €31bn ($43bn) between them imposed gates to stop investors removing their money. A government guarantee on savings accounts in the wake of the financial crisis, and the exposure of weakness at Hypo Real Estate, a German property lender, led to huge outflows from many property funds.
But last Tuesday, the CS Euroreal fund – the largest of the closed funds – reopened, after taking in more than €420m since it imposed gates on redemptions, according to Credit Suisse, which manages the fund. German investors placed a net €1.6bn in open-ended property funds over the four months from January to April, according to real estate adviser CB Richard Ellis, leading to increased liquidity across the funds. Net inflows of €556m in April were the highest in that month for five years.
Iryna Pylypchuk, a senior analyst at CBRE, said the trend in favour of the funds would shore up the sector, and lead to a further increase in confidence: “Strong inflows over recent months have contributed to improved liquidity levels for most of the funds.
“The other important factor to take into account is that German funds are very modestly leveraged. Although a maximum 50% fund-level gearing is allowed by law, the average in the sector is currently around 30%. They are therefore free to increase their level of debt if further capital is needed and recent announcements show that some funds have done just that by agreeing flexible credit lines.”
At the end of last week, eight of the 12 funds were still closed, according to CBRE and research by Financial News. Liquidity is the primary issue for the funds that remain closed – in the middle of last year, their average liquidity stood at about 14%, compared with the open funds’ average of 22%, according to CBRE analysis. A fund’s liquid assets are used to pay off withdrawing investors, meaning a fund can avoid selling off properties at distressed prices to do so. Liquid assets can also be used to fund acquisitions.
A spokesman for KanAm Grund, which closed two funds with more than €5bn between them, said substantial net inflows were bringing the funds “towards the 20% liquidity barrier”, and they are expected to reopen this month.
A spokesman for Degi, the German property business of Aberdeen Asset Management, said the company’s €1.7bn Europa vehicle would reopen before October, but the fund currently has 16% liquidity, and the company is targeting 25% before it reopens.
Axa Investment Managers’ €3.7bn Immoselect fund had 9.1% net liquidity at the end of May, according to a spokeswoman, and it is targeting 13% before it reopens. The company declined to say when it hoped to reopen the vehicle.
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