German funds to offload €18bn in real estate assets – report
GERMANY – A report from DTZ claims German open-ended funds (GOEFs) will be forced to sell European assets worth €18.4bn before 2017 as they shed mainly commercial real estate.
According to the report, forced sales will represent 8% of annual investment volumes.
To date GOEFs have offloaded assets worth €5.7bn, mainly office (€3.9bn).
The report said the bulk of the newly released assets – €13.6bn – would come from three vehicles: CS Euroreal, SEB Innovest and KanAmGrundinvest Funds.
Assets to be released by 13 funds currently in liquidation, and five funds frozen until latest June 2013 could create a decline in capital values driven by oversupply in the Benelux countries, which account for 28% of the office assets likely to be sold, and Southern Europe.
Pricing in the German market, which accounts for 30% of office assets, will be affected to a lesser extent.
Meanwhile, pricing remains an issue for German banks' property loans, according to Corestate Capital chief executive Phillip Burns, who believes it could take 5-10 years to work out German distress.
"It eventually needs to be worked out, but there continues to be an unwillingness or inability for the bank to take those losses," he told IP Real Estate.
"Pricing continues to be an issue because the banks can't necessarily afford to take the write-off. They're trying to build capital ratios, not eat into their reserves.
"It will continue to be worked out, but slowly. If it takes more time, the regulators will delay implementation.
"If you look at the closed-end funds, initially, the rules stipulated three years for liquidation. Now, for the very large ones, it's five years. Regulators will continue to be pragmatic."
German banks will likely prove reluctant to offload property debt in 2013, opting instead to mothball non-performing assets amid low funding costs, according to Gifford West, managing director of international operations and business development at DEBTX.
"There's a staggering amount of supply in Europe, but it's stuck,” he told a conference this week.
"There are smaller transactions coming out of banks, but we're not optimistic for big transactions in 2013.
"There's a question mark over Germany because the big holders are not in a rush to sell.
They may have unloved assets, but funding costs are low. For the buy-side, the trick is to figure out which assets are most unloved."