“The current crisis in open-ended real estate funds in Germany is not so much a property crisis as a crisis of confidence and transparency,” says Claudia Reich Floyd. The Head of Hazelview Investments Inc. (“Hazelview”) German office comments on the continuing outflows from open-ended real estate funds and the harsh criticism from consumer protection organisations towards this asset class.
According to Hazelview, a global alternative investment manager specializing in real estate, true liquidity only exists on the stock market. “It is the only place where millions of sellers and buyers meet every day, enabling investors to determine the price at which they can buy and sell shares in assets today,” emphasizes Ms. Reich Floyd.
In the past, open-ended real estate funds have repeatedly attracted investors who assumed that they were acquiring a liquid investment. “In reality, however, the only way to guarantee sustained liquidity is through the stock market,” says the expert. The illusion of open-ended real estate funds of being liquid and yet not experiencing price volatility has repeatedly led to frustration. “Volatility is always seen as a negative component. But the liquidity that comes with a stock market listing also brings extreme advantages that are often neglected,” Mrs Reich Floyd explains.
Billions flow out of open-ended real estate funds
Background: According to calculations by Barkow Consulting, investors in Germany withdrew almost six billion euros net from open-ended mutual real estate funds last year. According to the industry association BVI, this corresponded to around five percent of the total assets under management of EUR 125 billion in these funds as of September 2024.
The trigger for the deduction of the enormous sum was a revaluation of the “Uniimo Wohnen ZBI” fund distributed by Union Investment. The fund had suffered a “value adjustment” of 17 percent last summer. Funds from other companies also suffered high write-downs.
A few weeks ago, the consumer protection organization “Bürgerbewegung Finanzwende” (Citizens’ Movement for a Financial Turnaround) published a report stating that small private investors in particular are often lulled into a false sense of security by their bank and savings bank advisors: According to the report, property valuations are based on estimates that may not be realized in the event of a sale.
REITs: “daily liquidity and complete transparency”
Ms Reich Floyd, who has over 20 years of investment experience in Global REIT strategies, instead takes up the cudgels for such REITs. This form of investment is not yet very well-known in Germany compared to Anglo-Saxon countries.
“Daily liquidity – and therefore no years of waiting for liquidation – and complete transparency are two key advantages of such REITs,” explains the expert.
Instead of paying in money, which is then used to buy properties – or conversely, to pay out money, if properties have to be sold – REITs have existing property portfolios in which shares are bought or sold via the stock exchange.
“You can imagine that the management of the individual REITs will be able to plan very long-term operationally and also focus strongly on core competencies such as sectors or cities,” says Reich Floyd. This could create additional added value for investors. The detailed transparency also creates high incentives for management to achieve the best results: “Because companies with high standards also see these laurels reflected in their share price.”
Double-digit returns in selected sectors
Access to specific types of real estate around the world, equity-like returns plus current dividends from rental and lease agreements are further plus points. Hazelview points to the double-digit returns that global REITs have achieved on average over the last three decades.
Promising sectors, for example, were particularly profitable last year. Listed data centers achieved a return of 23.7 percent in 2024. In the healthcare sector, the return on associated REITs, such as senior housing in North America, was as high as 25.2 percent last year (source: Source: FTSE EPRA/NAREIT, as of 31 Dec. 2024).
“Investors who are interested in long-term investments in real estate on the one hand but want to react flexibly to market changes and strive for the greatest possible transparency on the other are therefore in our view better off in REITs than in open-ended real estate funds,” concludes Mrs Reich Floyd.
About Hazelview Investments Inc.
Hazelview Investments Inc. is an investor, owner and manager of global real estate assets committed to creating value for people and places. We are an active investor and have a hands-on team that identifies investment opportunities around the world. We are committed to fostering the long-term growth of our people, residents and the investments we make for our clients. Our global investment and asset management team of more than 90 people is based in Toronto, New York, Hong Kong and Hamburg. We manage real estate assets of CAD 11.7 billion (approx. EUR 7.7 billion as of 30 September 2024). For more information, please visit the website: www.hazelview.com.
