BOND ESCAPE

It's on the House

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  • Why it matters

    Why it matters

    Government bonds, with returns of around 1 percent, are less of an option for insurers and pension fund managers than they used to be,making restricted real-estate funds more attractive than ever.

  • Facts

    Facts

    • In the first nine months of 2014, restricted real-estate assets increased by €5.1 billion, or about $6.38 billion.
    • Restricted real-estate funds have come to handle as much capital as real-estate funds, which are open to the public.
    • Service capital management companies – or service-KVGs – assist managers of real-estate portfolios by taking care of set-up and operations.
  • Audio

    Audio

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It wasn’t long ago that groups offering restricted real-estate funds in Germany feared competition from products out of Luxembourg would strangle their growth.

That’s over now, and German offerings for institutional investors are growing continuously.

By late September, these funds were administering assets worth €49.3 billion, or $61.6 billion, according to the Bundesbank, Germany’s central bank.

In the first nine months of 2014, these assets increased by €5.1 billion.

“The net influx of funds will stay at this high level,” said Clemens Schäfer, managing director of RREEF Spezial Invest, which belongs to Deutsche Bank.

The largest share of the growth comes from increasing real-estate quotas of insurers. By the end of the year, these quotas are expected to increase to an average of 7.7 percent, according to a survey by the consulting firm Ernst & Young Real Estate.

Thomas Kuhlmann, managing director at Hahn Immobilien, described the practice up to now: “In the past, institutional investors didn’t tend to increase their share in real estate as much as they said they would. Back then they also had alternatives.”

Not any more. Government bonds with returns of around 1 percent – as well as the twice-as-profitable, but more risky bonds from Spain and Italy – are less of an option for insurers and pension fund managers than they used to be.

According to the IPD Analytics institute, restricted real-estate funds showed an annual return of 1.6 percent at the end of September. In itself, that would not be a reason to give them money. But that average is brought down by European-wide funds invested primarily in office buildings. In the same period, retail-property funds brought in 4.6 percent.

“The era of the big pool funds, for institutional clients investing billions throughout Europe, has come to an end,” said Reinhard Mattern, head of BNP Paribas Real Estate Investment Management. “Now, ideas for investment are regional, or based around a specific theme.”

This is illustrated by several recently launched funds. Hamburg-based ECE just purchased the Zielone Arkady shopping center in Poland, as the first asset in its second European Prime Shopping Center Fund. The Dr. Peters Group is setting up a restricted fund for hotel real estate. And Doric Investment is launching a fund for sustainable real estate together with a subsidiary of Raiffeisen Schweiz.

These examples show new trends as established companies see competition from niche groups specializing in a single segment. ECE focuses on large shopping centers. Beos concentrates on industrial real estate that is acquired and revamped for new uses.

Companies that used to offer closed real-estate funds also are pushing their way into the market. This group includes, for example, the Dr. Peters Group and Doric.

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