GERMANY – Proposals to define German real estate investment trusts (REITs) as investment funds, bringing them under the scope of Alternative Investment Fund Managers Directive (AIFMD), have been criticised as potentially damaging to the sector and the German economy.
The European Public Real Estate Association (EPRA) and Zentraler Immobilien Ausschuss (ZIA) have argued against the plans by the Federal Financial Supervisory Authority (BaFin) to classify REITs as investment funds under Kapitalanlagegesetzbuch (KAGB), the new investment code for implementing AIFMD in Germany.
Both organisations were responding to BaFin's consultation on proposals for KAGB. The consultation period ends today.
According to EPRA, the classification of German REITs as funds would be more damaging to the sector than the additional burden of compliance they would face.
EPRA CEO Philip Charls said: "The G-REITs in existence today are essentially the same as other German corporate businesses with their focus being to operate in the commercial property sector.
"To reclassify them as 'funds' is not only the wrong conclusion and contrary to the objectives of AIFMD, but would, if implemented, be detrimental to the future growth of the German listed property sector and the efficiency of the broader domestic real estate industry – and so too its critical role in supporting the German economy."
German property association ZIA criticised BaFin's approach that would apply the regulations to all German companies with a "fixed investment strategy" and only giving exemptions to those with an exclusively corporate strategy.
“But the remit of a REITs does not amount to an investment strategy,” said ZIA president Andreas Mattner.
ZIA warned that a number of points in BaFin's proposals “remain unclear” and that the line between an investment strategy and a corporate strategy is very fine.
One area of uncertainty highlighted by ZIA concerned whether the new regulations would apply to non-REIT real estate listed companies (Immobilien-Aktiengesellschaften) and limited companies (GmbH).
According to EPRA, the confusion between REITs and real estate funds is rooted in the potential for the underlying business activities of both to be broadly similar.
The association argued "the critical identifying features of a fund – as opposed to commercial operating businesses – arises from the relationship and engagement with its investors".
It continued: "In this respect, the relationship between a REIT and its shareholders and the operation of the corporation is no different to any other publicly listed company – whether in the real estate sector or not.
"G-REITs are perpetual operating companies and simply have a business strategy with the flexibility to be changed from time to time by their management, attracting a positive or negative reaction from shareholders and the market in general.
"REITs worldwide develop and operate property as long-term businesses with constantly evolving strategies. Their corporate structures and business operating models convey unique attributes that set them apart from the fund sector and have been proven to deliver significant benefits to the quality of the built environment in other developed markets around the globe."
EPRA finance director Gareth Lewis said "if BaFin insisted in reclassifying G-REITs as funds, it will be forcing these businesses into a sector where they don’t belong – nullifying the unique attributes that a healthy listed property sector brings and limiting the future growth of the Germany listed real estate industry".
He added: "This will have real social and economic implications for Germany in areas ranging from job creation, to investment and development in its cities and particularly sustainability – where listed property companies are leading the way in cutting energy and water consumption and managing waste in buildings across Europe."