G-REIT not a threat to open-ended funds

The introduction of the German REIT (Real Estate Investment Trust) in the course of 2007 will not lead to the demise of the open-ended fund. That is the opinion of Frank Pörschke, CEO of one of Germany's leading open-ended funds Commerz Grundbesitz-Investmentgesellschaft (CGI). 'There will be greater diversity of investment vehicles and we will also look at the possibilities for new products', he said in an interview with PropertyEU. 'But I don’t think there will be a revolution and that the huge mainstream of real estate funds will become REITs.'

CGI currently has a 12% share of the open-ended fund market. About 90% of its products are focussed on private investors. Pörschke conceded that the introduction of new types of investment vehicles will ultimately impact on the further growth of the open-ended funds, but added that REITs are not really advantageous for private investors. 'The tax advantages of REITs are more interesting for institutional investors who want to increase their allocation to real estate.'

Frank Billand, CEO of the German open-ended fund Difa, also refuses to talk of a threatened species. Private German investors prefer less volatile investment vehicles than REITs, he said at a symposium held for European property journalists in Paris last September. 'The open-ended fund is not a dinosaur. It may not live for another hundred mln years, but it will be around for a few hundred. The open-ended fund still has an interesting future. Anyway, it is no longer a purely German species. There are now also open-ended funds in Austria, Switzerland and France.'

Like Pörschke, Billand does not believe private German investors will switch en masse to REITs once the enabling legislation for the creation of these new investment trusts is passed. Private German investors are very risk-averse, he pointed out. 'Germans hate losing money. Yield ranks only fourth as a priority for investing in open-ended real estate funds. The risks and volatility of REITs are much higher than for open-ended funds.'

The post-war success story of the open-ended funds came to an end in 2004 following valuation scandals which prompted investors to massively withdraw their funds. In January alone this year German open-ended funds booked a total outflow of EUR 3.4 bn, according to industry association BVI. But the situation has stabilised, said Billand. 'Confidence is returning.'

Difa has a 16% share of the German open-ended fund market. It invests about half of its portfolio outside Germany, and that percentage is growing. CGI is even more internationally oriented: only 22% of its portfolio is invested in its home country.

CGI already has some experience with the French equivalent of the REIT thanks to the flotation earlier this year of a SIIC (Sociétés d’Investissements Immobiliers Cotées) on Euronext in Paris. The company is also looking at the evolving REIT market in Germany. Pörschke: 'The REIT is one of the options we will look at when considering new products, certainly for institutional investors. More than before, we will take advantage of the diverse options in different countries, in terms of both product and sales channels.'