EUROPE - Cross-border investors in Germany, France and Italy are increasingly looking to locally- regulated structures for their international real estate investments, according to Schroder Property.

Neil Turner, managing director at Schroders in Germany, told IPE Real Estate that over the past 12-18 months German, Italian and French institutional investors had increasingly favoured investment vehicles structured and regulated in their home countries.

There has been a widespread focus on core real estate from European institutional investors, as they look to reduce risk, but Turner believes that related to this phenomenon is a growing predilection for locally-governed structures.

"It is at least partly a reaction to the financial crisis and the collapse in the real estate markets," he said.

"Some investors that went international with non-regulated entities - or at least entities that were not regulated in their domestic market - which were fairly highly leveraged and had perhaps quite exciting investment strategies, saw NAVs [net asset value] in the funds hit quite hard because of the fall in the property values and leverage working against them.

"Partly a reaction to that is investors - whether Italian, French or German - saying they want a locally-regulated type vehicle with a locally-regulated manager, where the investment strategy is core, as opposed to opportunistic, and where the capital structure (the leverage) is quite limited. We have seen that across the board."

Turner says his experience in Germany is pension funds and insurance companies are increasingly turning to closed-ended spezialfonds and open-ended publikumsfonds, which are both regulated by BaFIN.

Schroders is aware of similar trends in France, where investors are looking to locally-regulated OPCI structures, and in Italy, where investors are favouring the country's equivalent, the SGR.

If the trend becomes widespread it will mean less use of offshore vehicles or the Luxembourg-domiciled and regulated FCP structure among this investor group.
Turner added: "I am not saying that the FCP structure in Luxembourg is not interesting for them. I think some investors will choose to invest in FCPs, as they have a role to play as well, but I do find it interesting that we are seeing this switch across to locally regulated types of funds," he added.