Exclusive Study of Open-Ended Real Estate Funds

Update as of 31 August 2015 Study: Open-Ended Real Estate Funds in Liquidation – The Investor’s View

EXECUTIVE SUMMARY

  • In September 2015 KanAm Grund Real Estate Asset Management GmbH & Co. KG (REAM), for the third time, published their study entitled »Open-Ended Real Estate Funds in Liquidation – The Investor's View«. In this study, REAM states that since the start of the liquidation process the funds have already sold about EUR 19 billion of the original EUR 33 billion worth of real estate assets. At the top of the list is KanAm grundinvest Fonds with a sales volume of EUR 3.9 billion.
  • The study applies to the so-called »SALES-RATE-FACTOR« which provides a ratio of the real estate assets to be sold and the real estate assets that have already been sold on a monthly basis, to determine whether the funds are selling their real estate assets fast enough to complete the liquidation process within the specified termination period. With a SALES-RATE-FACTOR of 1.4 KanAm grundinvest Fonds is the best performer among the open-ended real estate funds for private investors. The best performer among the open-ended real estate funds for institutional investors is SEB ImmoPortfolio Target Return Fund with a SALES-RATE-FACTOR of 0.6.
  • Another key task for the open-ended real estate funds in liquidation is the repayment of their loans before the end of the termination period. Among the open-ended real estate funds for private investors that have not yet been transferred to the depositary, only KanAm grundinvest Fonds and UBS (D) 3 Sector Real Estate Europe show a debt ratio of 0.0% as of 31 August 2015, the study's cut-off date, and have therefore fully repaid their loans even before the transfer to the respective depositaries. All other open-ended real estate funds that have already been transferred to the depositary, with the exception of TMW Immobilien Weltfonds and AXA Immoselect are also loan-free.
  • Since the start of the liquidation process, the open-ended real estate funds have paid out a total of EUR 11.6 billion to their investors. CS EUROREAL with a payout volume of around EUR 2.7 billion is at the top of the list.
  • Since investors generally stay invested in open-ended real estate funds for a period of 5 to 8 years, the study assesses the individual investment performance for a period of 5 years before the last suspension of unit redemption until the 31 August 2015, the study's current cut-off date. Here, the study found that 8 of the 18 examined open-ended real estate funds in liquidation show a positive and 10 a negative individual investment performance.

Study: Open-Ended Real Estate Funds in Liquidation – The Investor’s View

In the past 4.5 years, ten real estate investment companies in Germany have terminated a total of 18 Open-Ended real estate funds with a property value of 33 billion EUR. KanAm Grund REAM took advantage of this development to examine the current status of liquidations for the first time from the point of view of investors.

Having been triggered by the financial market crisis at the end of 2008, the sustainable continuation of quite a number of funds was no longer possible, given the high volume of returns to be paid to investors. All attempts to win back the confidence of investors failed in the face of the availability of the open-ended real estate funds traded daily which, until the amendment to the law in July 2013, exposed the vulnerability of the product like an Achilles heel.

The companies associated with liquidating open-ended real estate funds now have the task of liquidating the entire property portfolio within the usually 3 or 5 year period of notice through sales, to pay back loans to the banks and, ultimately, pay out the capital at regular intervals to the investors. All liquidating open-ended real estate funds should have sold their residual properties by May 2017 at the latest.

KanAm Grund REAM compiled an inventory of liquidations for the second time in February 2015 and examined the following questions:

  • How much have the liquidating open-ended real estate funds sold, and how many sales still have to be realized?
  • Are the funds selling quickly enough to complete liquidation within the defined period (Sales Rate Factor)?
  • How great is the burden of loan obligations on the funds?
  • To date, which funds have paid how much back to their investors?
  • What individual investment success have liquidating open-ended real estate funds realized to date?

KanAm Grund REAM does not examine liquidating open-ended real estate funds from the point of view of an analyst in the published study, but rather from that of an investor.

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