HSH Nordbank lowers forecast for G-REIT

German bank HSH Nordbank has significantly lowered its forecast for the tax-friendly real estate investment trust vehicle (G-REIT) which was introduced in Germany this year.

In a report entitled Deutsche Immobilienunternehmen am Kapitalmarkt (German real estate companies on the capital markets), HSH Nordbank reduced its 2005 projection of the market potential of the long-awaited G-REIT from EUR 30-60 bn in the period to 2010 to EUR 15-40 bn.

Besides the German government's controversial exclusion of residential property from the G-REIT structure, HSH Nordbank said the 'numerous statutory restrictions' also contributed to the bank's downbeat assessment.

'By limiting the flexibility of real estate corporations that would be eligible to switch to REIT status, the potential stock market capitalisation of G-REITs is likely to be diminished,' commented Peter Rieck, deputy chairman of HSH Nordbank. Nevertheless, the bank expects ' an appreciable market volume' for the G-REIT as the structure is particularly suitable for non-German and tax-exempt investors wishing to invest in German real estate. Additionally, new REIT issuers will enter the market in the shape of fund initiators, HSH Nordbank said.

The report also suggested that only a small number of existing real estate companies in Germany will switch to G-REIT status because to be eligible candidates must invest in commercial real estate in Germany rather than provide services to third parties and have modest to conservative gearing. The bank said it expects that a large number of existing real estate corporations that are looking into the possibility of converting to REIT status will decide not to switch.