GERMANY – The German supervisory body BaFin has declared that real estate investment trusts (REITs) must be judged on a case-by-case basis when it comes to applying new legal frameworks.

From 22 July, the Kapitalanlagegesetzbuch (KAGB) will go into effect in Germany as the government implements the Alternative Investment Fund Managers Directive (AIFMD).

Until the end of last week, it remained unclear whether or not REITs or other listed real estate companies would fall under the new legal framework.

BaFin has now clarified that any real estate company operating in the sector without accumulating money from investors into a so-called Investmentvermögen, in order to invest it "along a specified strategy" will not have to adhere to the new regulations.

In a statement (in German), BaFin said property management, project development – including the sale of a property the company has developed itself – facility management and consulting on sales and financing would be defined as "operational activities".

It added: "The question whether a REIT qualifies as Investmentvermögen cannot be answered in general but – similar to the case of listed real estate companies – can only be decided according to the specific situation in any single case."

German real estate lobby group ZIA welcomed the supervisor's statements as "practical".

The real estate association pointed out that the list of operational activities had been extended, and that BaFin changed its view on whether REITs in general would be classified as alternative investment funds.

The European Public Real Estate Association (EPRA) said the revised position reflected the recent guidance provided by the European Securities and Markets Authority (ESMA).

According to EPRA, the move also supports the association's view that G-REITs should be assessed against the criteria for identifying funds in the same way as any other real estate company.

However, EPRA still voiced concerns over BaFin's view that developing property for sale would be seen as an operational business – therefore falling outside the scope of the AIFMD – whereas the business of managing property for long-term leasing activity would not.

Olivier Elamine, chief executive at Alstria Office and an EPRA board member said: "The ongoing management of increasingly shorter and more flexible leases and active engagement with occupiers to reduce the operational energy use of buildings during the property lifecycle are just two examples of the important role property companies perform in servicing the accommodation needs of Europe's business and citizens.

"We struggle to understand why this business would not be recognised as an operational business."

In another part of the new regulation, there also appears to be a tendency towards a more favourable interpretation for the real estate industry.

It is yet uncertain whether the Investment-Kommanditgesellschaft (Investment-KG) – a pooling vehicle to be introduced under the new legal framework KAGB – would also be allowed to invest in real estate.

But a legal property expert told IPE during the Handelsblatt Immobilientagung that he was convinced the legal framework would allow such investments.

"My understanding is that open Spezialfonds can in future be structured in the vehicle of an Investment-KG and that they can directly invest in property or anything with a market value without a problem," he said.

The German real estate industry expects further clarifications on the KAGB from the supervisor over the next month before it takes effect.