Property mutual funds run by KanAm Grund KAG and the asset- management arms of Credit Suisse Group AG and Skandinaviska Enskilda Banken AB (SEBA), or SEB, must open for withdrawals in May after they were frozen in May 2010. The funds, with combined holdings of 16.4 billion euros, must liquidate if they can’t raise sufficient cash to cover redemptions.
“There’s still a crisis in these three funds, and how it pans out will influence the whole industry,” said Oliver Weinrich, head of Drescher & Cie. Immo Consult AG, a property- fund adviser near Bonn. “The key will be what assets they sell and how they keep investor confidence.”
Raising cash from real estate sales became more difficult after Europe’s growing sovereign-debt crisis led buyers to favor properties in prime locations occupied by tenants on long leases. Selling most-prized assets risks making more investors withdraw money from the funds when they re-open.
“At this stage, which is close to the deadline for some, they have to make a broader decision about what it will mean for each individual fund going forward,” said Iryna Pylypchuk, a research director in London with adviser CBRE Group Inc.
KanAm’s suspended 3.97 billion-euro Grundinvest fund (KANGRND) hired Knight Frank LLP to find a single buyer for four London properties valued by the fund at 1.09 billion euros. The buildings are EBRD’s head office next to Liverpool Street train station, ThomsonReuters Plc’s U.K. headquarters in Canary Wharf, Deutsche Bank AG (DBK)’s U.K. headquarters on London Wall and an office building at 90 High Holborn.
London for Sale
“London was the place to start” with asset sales, said Michael Birnbaum, head of communications at Frankfurt-based KanAm. The asset manager aims to reach a sale agreement before the end of the year, he said.
SEB Asset Management said Dec. 7 that its 6.3 billion-euro SEB ImmoInvest (S3EA) fund agreed to sell 14 buildings in Belgium, France, Italy and the Netherlands. More than 21 percent of the fund’s assets are now in cash or equivalents, taking it closer to reopening for redemptions.
“We are well under way,” Barbara Knoflach, chief executive officer of the Frankfurt-based money manager, said in a telephone interview, declining to be more specific or say when the fund will reopen.
Berlin Jewel
SEB ImmoInvest is seeking to sell a 50 percent stake in Potsdamer Platz, a collection of 19 buildings valued at 1.46 billion euros that includes the Grand Hyatt Berlin hotel and the Arkaden shopping center. It’s looking to sell other assets, including a San Francisco office building valued at 159 million euros.
Credit Suisse (CSGN), based in Zurich, said its CS Euroreal fund had about 21 percent of its 6.1 billion euros of assets in cash in early November. It announced the sale of the 40,000 square- meter (430,556 square foot) Galeries Saint Lambert mall in Liege, Belgium, last month. Allianz SE said Dec. 9 that it bought two Paris offices from the fund for 260 million euros.
Karl-Heinz Heuss, chief executive officer of Credit Suisse Asset Management Immobilien KAG, said in a Nov. 28 statement that the Liege mall sale didn’t jeopardize the quality of the remaining buildings in the German fund, “which makes us confident that the fund is ideally positioned for stable returns in the future.”
Deadline Approaching
The three funds are among six that halted redemptions after they were unable to sell buildings quickly enough to keep pace with investor withdrawals. The other three are run by affiliates of Axa SA (CS), UBS AG (UBSN) and Aberdeen Asset Management Plc. They have five, 10 and 11 months, respectively, to raise enough to cover redemptions.
How the suspended funds fare may affect demand for funds managed by Commerz Real AG, Deka Immobilien AG and Union Investment Real Estate GmbH, which remain open for withdrawals and continue to make property acquisitions.
The three are Germany’s largest real-estate mutual fund managers and received a net 1.2 billion euros from investors in the first 10 months of this year, BVI data show. Deka is owned by regional savings banks, Union Investment by cooperative banks, and Commerz Real is part of Frankfurt-based Commerzbank AG, with 800 branches in Germany.
“Nobody should feel too secure,” Weinrich at DC Immo Consult said in a telephone interview.
Industry in Crisis
Germany’s 85 billion-euro real-estate mutual fund industry may be facing the biggest crisis in its 50-year history. A dozen of the 44 funds, which own 28 percent of the industry’s assets, are liquidating or have suspended redemptions, according to Frankfurt-based BVI Bundesverband Investment & Asset Management.
As the credit crisis started to escalate in 2008, a scramble to withdraw money exposed a flaw in real estate mutual funds that own properties directly. While investors are allowed to withdraw money daily, the funds hold assets that take months to sell.
The German government stepped in to shore up an investment product favored by savers because of the reliable income returns it generates and the country’s lack of a developed real estate investment trust market. Legislation adopted in May and taking effect in 2013 will introduce notification periods, caps on withdrawals and staggered repayments to free funds from a potential liquidity trap.
Funds returned an average 4.73 percent annually in the 30 years through September, BVI statistics show. Still, German investors’ sentiment has been battered by losses reported by newer funds, which made acquisitions at the height of the debt- fueled global real estate boom, and by the ensuing redemption halts and liquidations.
New Rules
Money managers reallocating investment in response to the new rules governing mutual real estate funds are boosting the amount of withdrawals. The new rules effectively treat investments by German savers differently than professional investors.
Most of this money is staying in real estate, either through purchases of buildings or in so-called spezialfonds, which are mutual funds reserved for institutional investors, and Luxembourg-based funds, said CBRE’s Pylypchuk.
As individual German savers seek a haven that will provide a regular, secure income, asset managers are betting there is still a future for mutual property funds.
“This isn’t the end of open-ended funds,” said SEB’s Knoflach. “The consolidation under way is taking us back to where the industry stood prior to 2003,” she said.
Liquidations
In October, Axa said it would liquidate its 2.5 billion- euro Immoselect fund (IWMM) and Aberdeen Asset Management announced the closure of its 1.5 billion-euro DEGI International fund. The money managers have three years to sell a combined total of 99 properties spread across Europe, Canada and Japan. They are the two largest German property mutual funds to liquidate.
Credit Suisse, KanAm and SEB have each held hundreds of investor meetings across Germany since May to explain the new legislation, showcase the performance of their suspended funds and gauge the scale of potential withdrawals.
“Investors have to decide what they are going to do,” said KanAm’s Birnbaum. “We have to protect them from being too emotional.”
To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.
To contact the editor responsible for this story: Ross Larsen at rlarsen2@bloomberg.net.
http://www.bloomberg.com/news/2011-12-12/german-property-funds-to-sell-3-6-billion-of-trophy-assets.html
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