The most recent offshoot of the German specialised investment funds family is the specialised property investment fund (SPIF). This was born in 1976, but grew up very slowly in the shadow of its successful older brother, the specialised securities investment fund.
The property sibling had lean pickings and never really grew to full adulthood, as had the rest of this fund sector, which is extensively used by institutional investors in Germany.
The legal regulation of the specialised investment fund sector in 1990 after more than 20 years of existence of these funds dealt a further blow to the development of SPIFs. But since then, the situation has changed significantly, particularly in the last two years, as can be seen in Tables 1 and 2.
Following the breakthrough of SPIFs during 1998 both in terms of volumes of assets and numbers of funds, they virtually exploded in 1999. With three new investment companies offering these funds (up 43% on the previous year) and with 12 new funds (57%), the volume of assets grew by over 70% and the inflow of new money rose by 200%. In fact, this influx of fresh money in 1999 into SPIFs was as great as the total amount in the six years since 1993, as Table 3 indicates.
The breakdown as to the owners of SPIFs (shown in table 4), shows that the domestic insurance companies after a two year run-in period accounted for almost half at the end of 1999, while almost one third were held by domestic pension funds (Pensions- und Sterbekassen). But now non-German institutional investors in these funds count for one eighth of the volume of the amount invested in SPIFs – after a Dutch front runner in 1994. Domestic charities, mainly church-related, account for one tenth of investment , while enterprises and bank investors just make an appearance in the 1999 statistics, though their proportion is tiny.
In the German market place, you can hear about more investment and more funds are being formed to launch SPIFs. Existing companies, too, are bringing out new property funds. So the market for these vehicles in Germany is entering a dynamic development phase.
The reasons for this upsurge are manifold, but one decisive reason is the Europeanisation of real estate investments resulting in more investing outside domestic borders. The SPIF is optimal in comparison with direct investment, which requires the build up of an expensive administration for those assets based abroad. And this view is valid both for German institutional investors outside Germany as well as for non-German institutional investors outside their domestic borders, especially if they want to invest in German real estate.
In times when bond yields are shrinking below the prime office yield in the main centres in Europe, the alternative of investment in real estate is becoming more attractive .
This scenario guaranteeing next to stable real interest rates means there is a chance of substantial capital gains, especially when property investments can be done through securitisation of SPIFs quite safely, without substantial extra costs, when compared with that involved in direct real estate investment. The way of investment in property via SPIFs is going to become all the more interesting, since these funds are now able to invest into real estate companies with the same results as in property directly.
Out of the 33 SPIFs established in Germany at the end of last year, 25 covering around 90% of the assets of all funds, were capable of further analysis. My findings for the last three months of 1999 reveal some striking results concerning the growth in the assets of these funds, the kind of investments they make and the Europeanisation of the underlying portfolios:
q The assets of these funds consist of 411 individual properties (in 1998, 267), with an overall effective rental area of almost 2m sq metres (1.1m sq metres). Of this 89% (88%) was used for commercial purposes, and the balance for residential.
q Around 70 (17%) of these 411 properties (compared with 19 out of 267 the year before) are situated in Europe outside Germany, accounting for around 21% (11%) in space terms. The main countries where this investment by SPIFs takes place are in the Netherlands, UK, Belgium, Spain, France, and more recently Italy.
Hans Karl Kandlbinder is an investment consultant, based in Gräfin, near Munich. A more extensive analysis and study by the author of SPIFs is being published this month in Der Langfristige Kredit (issue 13/2000), Verlag Helmut Richards, Frankfurt