G-REITs will be a 'disappointment, but that's okay'

German real estate investment trusts (G-REITs) will be a disappointment for the first couple of years after they are introduced in January 2007 - but that's okay, said Struan Robertson, Managing Director and Head of Real Estate Europe and Middle East at Morgan Stanley London.

'Right now everyone is saying G-REITs are going to be a huge success,' Robertson told an Urban Land Institute panel discussion in Frankfurt am Main on Wednesday.

'Historically the patterns have been that the lobbyists, the journalists, even the investment bankers, say REITs are going to be unbelievable and they're going to change the world,' he said. 'And that's true until the law comes and people realise, oops, there are some details which don't quite work.'

'What will happen for the first two or three years, is the G-REIT will be a little bit disappointing, to be honest,' he said. 'But that's fine, that's nothing to worry about.'

Although he feels that Germany's REIT legislation is flawed, he said that wasn't a major problem. 'Like any REIT law which has ever been put in place in any country I'm familiar with, the G-REIT law is imperfect,' he said. 'And that's okay. Frankly you should celebrate victory on the G-REIT and enjoy it, and then expect that there will be changes over the next few years. That's perfectly normal.'

He said the technical and business model issues would have been worked out by 2011 at the latest. 'Most likely the law will have been amended,' he said. 'This is what happened in Belgium, France, Japan, the US, everywhere. There's no reason it shouldn't happen in Germany.'

'By the time we get to 2011, the G-REIT will be very healthy, with a large market capitalisation, and it will be a very viable complement to the open-ended funds as a source of capital and a target for investment.'

He also predicted that open-ended funds will still be around in 2011. 'Open-ended funds will continue to exist,' he said. 'They will perhaps be smaller but they will have changed in terms of what they're doing.'