Benjamin Baumann

All eyes 👀 on German open-ended property funds: How bad would a wave of redemptions be for property prices? Just in time before my former colleagues at Scope Fund Analysis (Sonja Knorr, Stephanie Lebert, Hosna Houbani, CFA) present the results of their annual study on the sector, the FT Lex publishes a commentary that highlights the critical juncture for the massive €300bn (retail & institutional) open-ended property fund sector in 🇩🇪: "Property investor Sam Zell once said that there is no value without liquidity. Illiquid property assets in liquid fund structures seem a fine idea while prices are stable or rising. Cash from new investors means plenty is available for anyone who wants out. When markets sour that equilibrium evaporates. Buildings can take years to sell while investors can ask for cash on demand. Funds in that situation have three unpalatable choices: 1️⃣ sell assets quickly into falling markets, 2️⃣ raise debt or 3️⃣ halt redemptions. After multiple UK property funds were forced to stop withdrawals following the 2016 Brexit vote and in the pandemic, the open-ended sector is much diminished. Assets under management have fallen by around half to €13bn today, according to Morningstar. That figure is dwarfed by the sums sitting in open-ended funds in Germany — where property markets are among the most troubled in Europe 🫣. About €120bn of retail property investment sits in similar open-ended fund structures in the country. Some €0.5bn of money on a net basis was pulled in the first two months of this year, according to Scope. ➡️With the sector experiencing its first meaningful net withdrawals since 2006, protections put in place back in 2014 may be tested.⬅️ 💡Those regulations meant that new investors had a 24-month holding period. Funds also have a 12-month grace period to meet redemptions from those investing since 2014. One disincentive to withdrawing money is that valuations are taken at the redemption date, not when it is requested. This is supposed to make liquidity management easier. Nonetheless, outflows are expected to rise, peaking in the third quarter of this year, thinks Scope’s Sonja Knorr. Liquidity remains robust with €17.3bn or 14% on aggregate — well above the 5% minimum. Average loan to value of 16% is also half regulatory requirements. ⚠️Open-ended property funds for institutional investors could pose a greater risk. They are less regulated, more opaque and contain €180bn of property assets owned by German pension and insurance assets. Redemptions are rising too. Liquidity and LTVs are largely undisclosed but exposure to offices is substantial. This is a waiting game 🪑🏃‍♂️. Investors who are short of cash 💶 are holding out for interest rate cuts. But sharp declines are not a given. The selling pressure could intensify this year." ( Opinions are my own. Not investment advice. Do your own research. ) Tap the bell 🔔 to subscribe to my profile & you'll be notified when I post. 💸

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#WomenInFinance: Bettina Hax has been giving #realestate advice since she was a teenager. Now, she's the Head of Real Estate Asset Management Central Functions at DWS. Watch the video to learn more about her career trajectory. At DWS, we aim to create an environment that helps you grow and help others to do their best. ➡️ Click here to learn more about your path to us: http://dws.co/60474abML #FemaleFinance

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Our latest Distress Alert report highlights that the number of Swiss companies in financial distress fell from 6.1% to 5.2%. Managing Director Alessandro Farsaci, CFA has been featured in HANDELSZEITUNG, AWP Finanznachrichten AG and Switzerland's Dow Jones, providing insights into the increase in restructuring activities in Switzerland. Read the article: https://okt.to/b1RNZL #AMon #Restructuring #Turnaround #DistressAlert

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