GERMANY – Real estate Spezialfonds and German open-ended funds (GOEFs) are set to remain within the German property market after the government confirmed it would pass a new law implementing the Alternative Investment Fund Managers Directive (AIFMD).

In its first draft, the Kapitalanlagesesetzbuch (KAGB) law had banned new Spezialfonds and GOEFs, in a bid to protect consumers from the liquidity problems faced by many GOEFs in the wake of the financial crisis.

These bans are now off the table, but some restrictions for GOEFs are still in place, including a fixed annual date for selling shares in a fund and four dates per year at which funds can sell new shares.

The real estate industry association Zentraler Immobilienausschuss (ZIA) welcomed the government passing the law without banning GOEFs, but said it would seek further flexibility in the parliamentary reading of the bill.

The KAGB law is also set to create a new listed real estate vehicle, which the industry has largely welcomed.

Alexander Tannenbaum, responsible for real estate on the board of Universal Investment, which entered the real estate KAG market last year, told IPE: "It is good for the German market that the product range is widened under the KAGB to include a real estate listed vehicle apart from the real estate Spezialfonds and the GOEF."

He thinks more institutional investors will opt to convert their directly held property portfolios, as "some institutions think direct investments are only binding their resources and do not allow them to add debt capital".

"Therefore," he added, "they are either selling properties to generate cash for new real estate or infrastructure investments, or they are transferring objects in their portfolio into fund structures to increase flexibility."

Universal Investment is planning to issue three more Spezialfonds by the end of the year focusing on Germany and the retail sector.

"One of them will be investing in city locations, the other in rural areas, and the third in retail big boxes," Tannenbaum said. 

He said the "major part" of the mandates signed in the coming year would still be individual funds, "as investors do not want to sit on an investment board with other institutions".

"However," he added, "there might be a few club deals or pooled funds, especially when foreign investment managers are approaching the market with new ideas in regions that might require a higher equity stake."

Tannenbaum said he was convinced that models such as the one offered by Universal, where administration and asset management are separated within the KAG, allowed investors to "pick the best specialists to help them generate excess returns".

It has also "lowered the barriers for foreign asset managers to enter the German market, as they no longer have to establish a KAG themselves", he said.

He added: "German institutional investors are widening the regional range in their portfolios mainly because there are asset managers on the market now that can offer the necessary expertise."

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