German REITs Present Tremendous Opportunity

11/29/2010 | By Matt Bechard
Speaking at REITWorld 2010: NAREIT's Annual Convention For All Things REIT in New York, Philip Charls, chief executive officer of the European Public Real Estate Association (EPRA), discussed the current state of the European listed property market and what lies ahead for 2011.

Charls began by saying that the major story in 2010 for Europe's listed property industry has been its ability to stabilize after the global economic crisis.

"On the equity side we have seen another $1 billion being raised in addition to the roughly $10 billion raised since the trough," Charls said. "On the bond side about $5 billion has been issued this year, and we expect more of that in the next 12 months."

Charls added that about $30 billion has been raised via the bond market but another $30 billion will mature shortly.

The REIT regimes across Europe operate independently with no uniform set of European REIT rules. As a result, some countries have had more success than others and a number of rules are in the process of being amended, Charls said.

"Countries that really need to change their regimes and make them into proper REIT regimes are Italy, Spain and Germany," Charls said. He added that the lingering economic challenges make governments hesitant to revisit their REIT rules as they are often viewed as having "special tax treatment" and officials fear adjusting them would not be seen as favorable by the masses.

"But I am confident with all the know-how that we have and the countries that have successfully introduced REIT regimes like France and the United Kingdom will provide backing and evidence that can show that REITs are not going to hurt but are going to help," Charls said.

In 2011, Charls said he expects development surrounding Germany's property market will be the major issue. Charls describes Germany as the biggest market and biggest opportunity for securitized real estate in Europe. Germany has long used open-ended funds, which are not liquid like REITs and are strongly pushed by banks due to large up-front fees, Charls said. Currently, about $90 billion to $100 billion is invested in these funds, with approximately 70 percent of that coming from retail investors.

"In the downturn they had great difficulty because people wanted their money out but they closed the funds and no redemptions were possible. The law says a fund can do that for a maximum of two years," Charls said. "So at this point in time about $25 billion needs to come back on the market."

Charls said EPRA is in conversations with German government officials to demonstrate that REITs could be a solution to this problem.

"How can you explain to consumers that it is fair that they lose so much money while REITs at the same time have done extremely well?" Charls said.

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