BERLIN-The German federal government has not dropped plans toimpose a 10% across-the-board valuation discount on open-endproperty fund portfolios in the framework of new legislation to beproposed before the summer. However, industry specialists remainconvinced that its imposition, if it occurs, will damage the $110billion sector and could be its death knell.

|

Industry sources say that a wide-ranging discussion at thefederal finance ministry in Berlin at the end of last month betweennumerous real estate fund representatives did not touch on thediscount at all. It focused mainly on Berlin proposals for aminimum investment period, redemption notice, and possible separatetreatment of institutions and private savers.

|

However, there is no indication that Berlin has dropped theidea. “It is quite clear that this is not off the table yet,” saidone source, requesting anonymity. “But it is equally clear whatinstitutional investors will do if this is part of the legislativeproposal; they will simply transfer all their investments out ofthis vehicle so that such a move would actually just be a way forfund managers to earn fees and agios (entry fees) for reinvestingin other vehicles.”

|

The federal finance ministry early last month proposed thatproperty portfolios, under a new law, be first depreciated by 10%to avoid the precipitous write-downs that two funds have beenobliged to announce over the last 12 months - Morgan Stanley’s P2Value, and Degi Global Business, owned and managed by AberdeenAsset Management. Each, coming at different times, sparkednervousness among all real estate OEF investors and caused runs oncapital cited by competitors as forcing them also to close forredemptions.

|

Although many specialists have proposed legislation that sets aclear separation of vehicles for institutions and retail investors,the large Berlin meeting - which grouped around 30 representativesfrom open property funds and almost the same amount from closedproperty funds, which cater mainly to German domestic investors -heard that with major banks advising most private investors, thelatter group tends in any case to act in concert. This blurs thedifferences between the two, and makes a division along the linesof ‘natural’ or ‘non-natural’ persons unviable.

|

AllanSaunderson is a managing editor of Property InvestorEurope and a contributor to GlobeSt.com.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.