Hot money heads for German real estate funds despite recent upsets

At first glance, trends in German real estate don’t add up.

As German property funds suffer a series of liquidations, house prices continue to drive relentlessly upwards causing mutterings of a property bubble in Europe’s core economy.

Yet the curse of German real estate funds refers to retrospective challenges, according to Ulrich Steinmetz, managing director at RREEF, Deutsche Bank’s dedicated property group, and manager of its Grundbesitz Europa and Grundbesitz Global funds.

‘Private interest and the question of rising property prices in Germany are things that have started very much in the last 12 to 24 months,’ says Steinmetz.

‘I don’t think there is a disconnect between this and the liquidation of property funds, it is just a question of timing.’

Financial turmoil over the past five years has compelled retail and institutional clients to drop real estate funds and search for higher yielding assets.

The latest casualty is the HANSAimmobilia fund , a property fund liquidated by the Hamburg-based Hansainvest in August and that follows the fate of the liquidated CS Euroreal and the SEB Immoinvest funds .

‘Clients have been too big and investors too concentrated in some of the big property funds,’ says Steinmetz. ‘It’s a question of how it has been handled.’

Since 2008, the Grundbesitz Europa fund has held an IC share class for investors with more than €1 million. Investors are as such bound to a longer-term investment and need to give notification if they want to redeem.

Return of ‘hot money’

Yet the tide of institutional interest in property funds is coming back, says Steinmetz whose clients are typically German-based institutions and pension funds.

‘In Germany at least, institutional investors had a property allocation from 10% to 15% before 2008. They now don’t have any allocation as after 2008 they started to look for assets with more returns.'