GLOBAL - German open-ended fund manager Union Investment Real Estate has temporarily suspended redemptions of units in its UniImmo: Global fund due to a significant weighting to the Japanese real estate market.
Union Investment is the only the open-ended fund operator in Germany to freeze redemptions as a direct result of earthquake-induced crisis in Japan, but the company said UniImmo Global's 14% weighting to Tokyo gave it "no option" but to suspend redemptions.
Ironically, Union Investment is one of a select few of German open-ended fund managers that has been able to keep its funds open to redemption in recent years, while a number of competitors have experienced liquidity difficulties and some are even liquidating funds.
The fund manager attributed the decision to freeze redemptions to its inability to revalue its Tokyo property assets in what is a highly uncertain market environment, not least considering ongoing developments at Japan's damaged Fukushima nuclear plant.
Earlier in the month, three Tokyo properties held by UniImmo Global were devaluations - the Shiomi-Koyama office in Tokyo fell by 27.1%, the Glass
City Harumi dropped 23.4%, and the SoLaDo shopping centre was devalued by 9.5% - leading to a 4.5% reduction in the fund's share price.
Redemption of units will remain temporarily suspended until a fair price for the units can be calculated again following proper determination of the market value of the fund's Japanese properties.
No significant visible damage was suffered by the Japanese properties held by the UniImmo Global, which are all located in Tokyo, following the earthquake on March 11 and the subsequent tsunami.
Redemption suspension of Union Investment's other real estate funds with properties in Tokyo is not necessary because they do not hold significant investments there, Union Investment said.
The German open-ended fund sector has recently been reformed through changes made to the Germany Investment Act in February.
These include minimum holding periods of 24 months and penalties for withdrawing within four years of placing investments, designed to prevent liquidity crises and to avoid the volatility associated with short-term investors.
The new legislation has also reduced the financial gearing German open-ended funds can use, from 50% to 30%.
This may make German open-ended funds less competitive when bidding on real estate assets outside the eurozone - including markets like Japan - because managers rely on gearing for currency hedging and tax efficiency purposes