Countdown for German property funds as illiquidity looms

Don't just visit it – buy it. What does it mean when Potsdamer Platz is up for sale but buyers are hard to come by?

Last Monday, DWS Investment liquidated its €257 million DB ImmoFlex fund of funds. Two other frozen funds worth around €6 billion each, Credit Suisse's CS Euroreal fund and the SEB ImmoInvest fund, face a May deadline to reopen as they search for buyers of Europe’s most famous landmarks.

On ImmoInvest's shelf, a fund in the asset management branch of the Swedish mother bank, is none other than Potsdamer Platz, according to German newspapers.

‘If you have the right portfolio, with assets of a smaller lot size, sectorally and regionally well diversified, you should be able to create liquidity in property,' said Ulrich Steinmetz, managing director at Deutsche Bank's RREEF Germany, told Citywire Global.

The €3.2 billion RREEF fund Grundbesitz Europa run by Bernd Ebert outperformed peers in the last three years returning 10.1% compared with the average manager reutrns at -1.7%.

'Those now struggling are the ones who bought before the freeze in 2008-2009 and are stuck with an undiversified portfolio of assets harder to sell,' said Steinmetz.

Lack of liquidity is the key curse of the industry. SEB ImmoInvest announced  Friday that it will postpone its re-opening until next year, citing ‘current incidents in the financial sector.’

‘The markets have changed dramatically since the beginning of the year,’said Barbara Knoflach, portfolio manager of the SEB ImmoInvest fund.

‘On behalf of all investors – irrespectively of their investment strategies – maintaining the value of their assets is our first priority.'

Karl-Heinz Heuss, portfolio manager of the CS Euroreal fund told Citywire Global that the fund is looking to sell assets worth €400 to €500 million over the next couple of months from a 'cross section of assets' for a 're-start' before May. He blamed the problems of the sector on the current market conditions.

'It is mainly the whole financial system that people do not trust at the moment but we expect this to calm down within the next couple of months', said Heuss, adding that the CS Euroreal fund saw an inflow of €200 million since suspending redemptions earlier this year.

There are still buyers. Demand mainly comes from Middle Eastern investors and some from the US and 'even' Germany, according to Steinmetz.