GERMANY – Germany's new Kapitalanlagegesetzbuch (KAGB), by which the government has implemented the Alternative Investment Fund Managers Directive (AIFMD), is already making waves in the local real estate market.

Real estate investor White Label is planning to set up a new type of Service KAG under the KAGB, while German project developer Project has said it will apply the new regulation with the expectation that BaFin, the financial watchdog, will extend its scope.

In the real estate sector, the KAGB will apply to all companies that raise capital to invest under a "specified strategy", according to BaFin.

Among the major changes the new law brings are stricter regulations for open-ended real estate funds, extended reporting requirements for Spezialfonds and a restructuring of closed-end funds.

The KAGB excludes most real estate investment trusts and project developers, but Project has decided to apply the law to its development business anyway.

The company said it expected BaFin to differentiate between project developers that make operative decisions on their own, and those like Project that make decisions through an asset manager.

In a statement to IP Real Estate, it said: "If the fund management manages the project development, this would be a direct operative activity, which we think would not fall under the KAGB."

However, in Project's case, an asset manager is used for the operative decisions, which might entail the application of the KAGB anyway.

While Project expects "further clarification" from the regulator, it said it did not expect project developers in general to fall under the new legislation in future.

The KAGB, which went into effect on 22 July, has also given birth to a new kind of Service KAG.

White Label Real Asset Products, founded in January by former board members at Dutch pension fund Bouwfonds, is in the process of creating a so-called Master KVG.

All Kapitalanlagegesellschaften, asset managers wanting to issue Spezialfonds or the newly created Investment KG have to re-register as KVGs (Kapitalverwaltungsgesellschaften) under the new KAGB.

Peret Bergmann, designated COO at White Label's Master KVG, pointed out that investors own shares and help make certain decisions in a Master KVG, which is not the case with a Service KAG.

The Master KVG focuses mainly on smaller closed-end fund providers struggling with the new regulatory environment, as closed-end funds are for the first time fully regulated.

However, Bergmann said the Master KVG would also be open for institutional investors aiming to pool their real estate holdings through the new Investment KG vehicle.

Deutsche Investment KAG – also soon to be KVG – said it was "very glad" about the KAGB, as it brought "legal certainty” to Spezialfonds, according to managing director Goesta Ritschewald.

He told IP Real Estate he had already seen much more dialogue between investors and service providers regarding new Spezialfonds, and expected funds to be set up soon.

"Projects had been put on hold over the last two years because of the legal uncertainties," he said, referring to the first draft of the KAGB, under which Spezialfonds would have been abandoned, along with open-ended real estate funds.

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