Despite the raft of UK property funds that have either suspended redemptions or marked down the value of their fund in the past two weeks following the shock UK vote to leave the EU, comparisons to Germany’s open-ended fund crisis in 2009 are premature, according to James Beckham, head of London Capital Markets at Cushman & Wakefield.
'This market shock is unlike the last financial crisis in 2008,’ he said. ‘Yes, some investment deals in London have collapsed in light of the Brexit vote, including Cannon Place, which was on the market for about £460 mln and One Wood Street that was under offer for around £190 mln. However, sterling has weakened significantly, there is no recession forecast and international investors have already come back in looking for deals. We are advising on an office sale in Central London that attracted an international investor purely because of the better value to be had post-Brexit vote.’
In addition, there is no credit crunch and the banks are lending, according to Beckham. ‘Having gated their funds, some fund managers are now selling assets in orderly disposal programmes which might well include portfolios and they will find that there is good interest in the market. This is in complete contrast to the first quarter of 2009 when there was no liquidity and only two office buildings traded in the City market. It’s different this time!’
Moreover, it is important to keep the current UK property fund crisis in perspective, said Beckham: ‘Combined, they represent - by value - no more than 5% of the total UK commercial property market of circa £550 bn.’
Following the collapse of Lehman Brothers in October 2008, which precipitated a global financial crisis, 12 German-ended funds, including Morgan Stanley’s P2 Value fund, DEGI Deutsche Gesellschaft für Immobilienfonds’ Europe and International funds, SEB Immoinvest and AXA Immoselect banned redemptions, citing market turbulence and runs on other funds for the temporary freezes.
The 12 funds accounted for 37.58% of the €83.78 bn of AUM of all open-ended real estate funds in Germany at the time, according to the BVI Bundesverband Investment und Asset Management, which represents the German investment and asset management industry. Several funds, including Morgan Stanley’s P2 Value Fund, went on to be liquidated.
In a bid to stabilize the sector, a wave of new regulations were introduced, including the AIFM directive in 2013, which stated that unit holders would have to wait 12 months before they could make any redemptions. Previously, they could redeem up to €30,000 of their shares in an open-ended real estate fund on a daily basis.
