GERMANY - The €8.5bn doctors' fund Nordrheinische Ärzteversorgung (NAEV) will cut its direct real estate holdings in Germany in an overhaul of its property investments.
The fund currently has around €675m in direct domestic real estate holdings, while the other half of the property portfolio is invested in domestic and foreign real estate companies, foreign REITs, property shares and the specialist German vehicle for institutional investors, the Immobilien-Spezialfonds (ISF).
Over the next two to three years, however, the domestic direct real estate portfolio will be cut in a step-by-step approach with most of the remaining assets going into a bespoke ISF, Dirk Lepelmeier managing director of the Nordrheinische Ärzteversorgung (NAEV), explained to IPE Real Estate.
He added the fund had long intended to get rid of some of its direct German real estate holdings because of existing depreciation rules on property under German accounting standards (HGB).
"We had planned to create a REIT structure for some of our direct real estate holdings which is mainly residential property," Lepelmeier noted. "But we were disappointed by the final legislation."
REIT legislation in Germany, in place since spring this year, does not allow the inclusion of residential property built before 2007 in the newly-created vehicle.
"A sizable segment of real estate on the books of German companies and public entities is now unavailable to REIT investors," the NAEV head added.
The fund will now create an ISF for its own property holdings, which allows funds to keep control of investments without having to hold real estate directly.
"Immobilien-Spezialfonds are replacing direct real estate holdings in the domestic German market and are in turn replaced by listed property, especially when it comes to foreign investments," Lepelmeier said in summation.
He added the fund had no intentions of pulling investments from the German market completely.
"By not using the expertise we have in working outside our own office doors, we would lose the competitive edge on the market," he explained.
"We will cut our exposure to German real estate but, of course, not fully disinvest from this sector."
To find out more about the development of ISFs and REITs in Germany in the January/February issue of IPE Real Estate to be published next year.