DTZ Insight German Open Ended Funds - March 2013 More sales in 2013 in and Netherlands hh 11 March 2013 Contents Current status of GOE funds 2 GOE funds buy-side activity 3 Next steps of liquidation process 5 Author Magali Marton Head of CEMEA Research +33 (0)1 49 64 49 54 magali.marton@dtz.com Contact Hans Vrensen Global Head of Research +44 (0)203 296 2159 hans.vrensen@dtz.com As a consequence of in-depth changes to regulations since 2010, fourteen German Open-Ended (GOE) funds are currently in the process of liquidation. Four other funds have redemption freezes in place and could go into liquidation in 2013 or 2014. Every fund in liquidation is intending to sell its portfolio of assets at the best price possible before their mandates expire (from 2013, to 2017 at latest). GOE funds which are in the process of liquidation, or have redemption freezes hold a portfolio estimated to be 21bn at the end of 2012, of which 18bn of the assets are located in Europe. The most active funds on the sell-side in 2012 were SEB ImmoInvest, KanAm Grundinvest and, to a lesser extent, Morgan Stanley P2 Value funds. The first sales in 2012 by these funds were of assets in the French and UK markets, with foreign investors being attracted to those assets with lot sizes above 100m. Funds whose management period will end in 2013 were less active in 2012 than we expected, and still hold 1.4bn of assets which need to be sold. We anticipate more activity from these funds over the course of 2013, especially in and the Netherlands, where most of the assets to be sold are located. The years 2014 and 2017 are expected to record levels of assets sales in Europe. 2014 should see a peak in the closing of funds holding assets in Southern Europe and CEE; while in 2016 and 2017 the highest volume of sales is expected to be in France and the UK. Positive market conditions in should ease the GOE funds liquidations. On the other hand, the Benelux and Dutch markets appear less likely to offer lots of buying opportunities. In these markets investment volumes have remained low and domestic investors, mainly active on small or medium lot sizes, are the major players. As such, some declines in pricing are anticipated. Figure 1 Sales by GOE Funds in 2012 and portfolios to be sold (sq m) as at January 2013 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Sales in 2012 Poland UK&France Portfolio to be sold CEE Other UK&France Southern Eur. Benelux DTZ Research
Current status of GOE funds New regulations have forced 14 GOE funds to liquidate and 4 others could follow in the short term Since 2008, German Open Ended (GOE) funds have been caught in the turmoil of the global financial crisis. A number of funds had to stop redeeming share certificates in order to ensure they had a sufficient level of liquidity at any time. New regulations made a number of funds less interesting for institutional investors, and forced some of them to decide to liquidate following a freeze on redemptions. Between September 2010 and November 2012 14 GOE funds have announced their liquidations (Table 1), while 4 other funds still have a freeze on redemptions, with expected or planned re-opening dates between March 2013 and February 2014. Some of these funds could extend their freeze periods though. Every fund intending to sell its asset portfolio will aim to get the best price possible before its mandate expires, given the prevailing economic and investment market environment. To achieve this goal, the funds have a time window for sales, which varies significantly between them. All properties not sold within the fixed time frame will go over to the Depotbank, which will complete the liquidation process. HansaImmobilia will be the next fund to reach the end of its management period, in April 2013, followed by Degi Europa and Morgan Stanley P2 Value later in the year. Combined together these three funds account for 1.4bn of assets. The peak of the liquidation process will be reached in 2014 with the shutdown of four funds, including AXA Immoselect ( 2.2bn of AUM) and Degi International ( 1.3bn). In 2017 the mandates of the 2 biggest GOE funds in liquidation (SEB ImmoInvest and CS EuroReal) are planned to expire. Each of these funds still holds more than 4.5bn of assets in their portfolios. The four funds with a redemption freeze listed in table 2 could provide an additional volume of 1.7bn of sales if they were liquidated. Table 1 GOE Funds in liquidation Name of fund Notice of management effective from KanAm US-Grundinvest Fonds 31/03/2012 HansaImmobilia 05/04/2013 Degi Europa 30/09/2013 Morgan Stanley P2 Value 30/09/2013 TMW Immobilien Weltfonds 31/05/2014 Degi Global Business 30/06/2014 Degi International 15/10/2014 Axa Immoselect 20/10/2014 Axa Immosolution 11/05/2015 UBS (D) 3 Sector RE Europe 05/09/2015 DEGI German Business 30/11/2015 KanAm Grundinvest Fonds 31/12/2016 CS Euroreal 30/04/2017 SEB ImmoInvest 30/04/2017 based on funds information Table 2 GOE Funds with a redemption freeze Name of fund Planned end of freeze CS Property Dynamic 22/03/2013 SEB ImmoPortfolio Target Return Fund 13/06/2013 SEB Global Property Fund 07/12/2013 KanAm Spezial Grundinvest Fonds 02/02/2014 based on funds information www.dtz.com DTZ Insight 2
GOE funds buy-side activity in 2012 GOE funds holdings reduced by 4.6bn in 2012 The value of GOE funds in the process of liquidation or with a redemption freeze in place fell from 25.8bn at the end of 2011 to 21bn at the end of 2012, a 4.8bn or 19% decline on average. Most of this decline came from asset sales rather than falls in values. SEB ImmoInvest and CS EuroReal posted the biggest decreases (in absolute value), with the net values of their assets under management down by 1.7bn and 1.1bn in one year (Figure 2). These 2 funds accounted 60% of the decline in value recorded in 2012 for all those GOE funds in troubles. KanAm Grundinvest Fonds was in 3 rd position, posting a 571m of decline in value in 2012. Five other funds (Degi Europa, Degi International, TMW Immobilien Weltfonds, Morgan Stanley P2 Value and AXA Immoselect) recorded significant drops in value in 2012 (from 170m in total to 280m), whilst the other GOE funds have seen the value of their portfolios fall by less. GOE funds with long-term closing were the most active in 2012 Comparison of the changes in value recorded in 2012 to the value of the whole portfolio gives a slightly different picture. The decline in value registered by the GOE funds in 2012 represents 19% of their portfolio value at the end of 2011 (Figure 3). Funds which have recorded declines in value above the average are mainly those which will be liquidated in 2013 and beyond, such as Morgan Stanley P2 Value or HansaImmobilia. With a 27% fall in 2012, SEB ImmoInvest registered one of the biggest drops in value amongst the GOE funds; this reveals the pro-active approach taken by this fund, which is due to be closed in April 2017. TMW and Degi Global Business have adopted a similar strategy, even if their sales have been of lower valued assets. At the other side of the scale funds due to be liquidated in 2013 were less active than expected; they have still 1.7bn of assets to sell in their portfolios. Therefore more sales activity can be anticipated from these funds over the course of 2013, with sales expected in a wide range of European countries, including and the Netherlands. Figure 2 Total net assets holdings by GOE funds, m Source: BVI/DTZ Research Figure 3 Change in total asset holding values of GOE funds in 2012 as % of AUM value as at end of 2011 The colour of the bar depends on the mandate expiration of each fund Source: BVI/DTZ Research SEB ImmoInvest CS EuroReal A KanAm Grundinvest Fonds AXA Immoselect Degi International Degi Europa SEB ImmoPortfolio Target TMW Immobilien Morgan Stanley P2 Value KanAm Spezial AXA Immosolutions UBS (D) 3 Sector Real HansaImmobilia SEB Global Property Fund CS Property Dynamic Degi German Business Degi Global Business Morgan Stanley P2 Value SEB ImmoInvest TMW Immobilien Weltfonds P HansaImmobilia Degi Global Business CS EuroReal A Degi Europa Degi International AXA Immosolutions KanAm Grundinvest Fonds KanAm Spezial Grundinvest AXA Immoselect Degi German Business SEB Global Property Fund UBS (D) 3 Sector Real Estate SEB ImmoPortfolio Target CS Property Dynamic 0 2 000 4 000 6 000 8 000 End of 2011 End of 2012 0% 20% 40% 60% 2013 2014 2015-2017 Freeze www.dtz.com DTZ Insight 3
France and UK ranked first on the GOE Funds liquidation plan in 2012 Assets sold by GOE funds in the process of liquation or with a redemption freeze in place totalled 3.4bn in 2012, through 27 deals if only the European part of their portfolios is considered (Figure 4). Figure 4 Value of asset sold by GOE Funds in Europe, 2012 Luxembourg 2% Poland 4% Sweden Belgium 2% 0,5% The sales were concentrated in France (41%) and the United Kingdom (31%), where funds have benefited from good market conditions and attractive pricing. Surprisingly, GOE funds have been quiet in their domestic market, which accounted only for 20% of the assets sold by value in 2012. 20% United Kingdom 31% France 41% Netherlands and Belgium were not on the GOE funds sales agenda in 2012 as many of the assets they hold there (1.4 million of sq m) are due to be liquidated from 2014 to 2017. Therefore GOE funds can wait until more favourable market conditions allow them to optimize their pricing. This is especially true for the Netherlands, where investment volume ( 3bn recorded in 2012) remains way below the 10 year annual average ( 5.7bn). Investor appetite for big lot size drives GOE Funds choices for sale Investor appetite for large lot size office buildings drove GOE funds choices in their liquidation strategy. Analysis of their sales by lot size shows that the volume in France ( 1.4bn) and the UK ( 1bn) is mainly linked to a few deals done on the segment of the market with prices above 100m (Figure 5). The record was reached by KanAm, who sold the One Exchange Square office building in London for 599m to Permodalan Nasional Bhd, a Malaysian property fund. KanAm also sold 3 other office buildings (2 in Paris and 1 in London for a price averaging around 300 m per asset). These four buildings were bought by inter-regional investors from the Middle-East (for Paris assets) and from China (for London assets). Figure 5 Sales by GOE Funds in Europe by country and lot size, 2012 0% 20% 40% 60% 80% 100% France United Kingdom Poland Luxembourg Sweden Belgium 10-20m 20-50m 50-100m 100-200m 200-500m 500-1,000m Forced sales by GOE funds provide the market with some opportunities on lot size which are unusual. The sale by Degi International of the Marynarska Business Park in Warsaw is a good example. The asset was bought by the US investor Heitman for an estimated price of 100m. Sell-side activity by GOE funds recorded in has been more diversified in terms of pricing. Some small or medium lot size assets have been sold, located in a wide range of cities, including some secondary markets. www.dtz.com DTZ Insight 4
Next steps of the liquidation process GOE Funds will provide 21bn of investment opportunities across the world, mainly located in Europe The liquidation process of GOE funds is still far from finished, with the value of assets still held worth 20.6bn and covering 9 million sq m across the globe. Europe is where the majority of their portfolio is concentrated, with 6.5 million sq m already planned to be sold from now until 2017, and an additional 1.3 million sq m currently held by funds which have redemption freezes in place. Given the timing announced for these liquidations, the years 2014 and 2017 are expected to show record levels of GOE funds asset sales in Europe, as well as globally (Figure 6). However, GOE funds do have the possibility of accelerating their selling process to take advantage of more favourable market conditions. Half of the assets to be sold in Europe are located in and Benelux Assets held by the GOE funds in liquidation are mainly concentrated in (2.1 million sq m, or 33% of total leasable space total volume) and in Benelux (1.3 million, or 19% of total leasable space volume). Southern Europe is in third position, with GOE funds holdings there accounting for an additional 1.1 million sq m of space. The market activity recorded in since the crisis ( 24.4bn in 2012), and the perception of the country as a safe haven in Europe, make us confident of the capacity of investors to absorb sales there. The analysis is different for the Benelux, and even more so for Southern Europe, where investment market activity is still low. In this context we anticipate that some price adjustment will be necessary to ease the deal-making process. Figure 7 provides an analysis of assets to be sold by subregion, and the closing date of the funds. 2014 will see a peak in the closing of funds holding assets in Southern Europe and CEE, whilst the highest volume of sales of assets in France and the UK is anticipated in 2016 and 2017. Once again, Benelux shows a different profile, with 550,000 sq m of assets to be sold in 2013-2014, and a further 700,000 sq m in 2016 and 2017 (Figure 8). The Dutch market should be impacted significantly, with 900,000 sq m of assets to be sold, whereas the market has not yet rebounded in investment volume, and hasn t benefited from any cross-border capital flows. Figure 6 GOE Funds portfolio as at January 2013 by date of liquidation, sq m 3 500 000 3 000 000 2 500 000 2 000 000 1 500 000 1 000 000 Figure 7 European GOE Funds* portfolio, January 2013, sq m * Funds in liquidation only Figure 8 500 000 0 European GOE Funds* portfolio by date of liquidation and by country, January 2013, sq m 3 000 000 2 500 000 2 000 000 1 500 000 1 000 000 500 000 0 * Funds in liquidation only 2013 2014 2015 2016 2017 Freeze Europe Asia America Other 10% UK & France 14% CEE 7% Southern Europe 17% 33% Benelux 19% 2013 2014 2015 2016 2017 Benelux Southern Europe UK & France Other CEE www.dtz.com DTZ Insight 5
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DTZ Research Contacts Global Head of Research Hans Vrensen Phone: +44 (0)20 3296 2159 Email: hans.vrensen@dtz.com Global Head of Forecasting Matthew Hall Phone: +44 (0)20 3296 3011 Email: matthew.hall@dtz.com Head of CEMEA Research Magali Marton Phone: + 33 1 49 64 49 54 Email: magali.marton@dtz.com Head of South-Asia Research Dominic Brown Phone: +61 431 947 161 Email: dominic.brown@dtz.com Head of rategy Research Nigel Almond Phone: +44 (0)20 3296 2328 Email: nigel.almond@dtz.com Head of Strategy Research Nigel Almond Phone: +44 (0)20 3296 2328 Email: nigel.almond@dtz.com Head of UK Research Ben Burston Phone: +44 (0)20 3296 2296 Email: ben.burston@dtz.com Head of Greater China Research David Ji Phone: +852 2507 0779 Email: david.yx.ji@dtz.com Head of Americas Research John Wickes Phone: +1 312 424 8087 Email: john.wickes@na.ugllimited.com DISCLAIMER This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. DTZ March 2013 www.dtz.com DTZ Insight 7