Germans freeze £21bn property funds

Crisis foreshadows probable collapse of UK commercial real estate market in 2009

Nearly €30bn of German property funds were frozen between Tuesday and Friday last week in what industry experts fear could foreshadow a UK commercial real estate collapse.

A series of "open-ended" – meaning that investors can withdraw their money whenever they choose – property funds were temporarily shut down, including those run in Germany by AXA, UBS and Morgan Stanley.

The 11 funds involved suffered from a string of major investors pulling their cash to raise liquidity. In order to redeem the money, the funds have to sell assets in their property portfolios, which is costly as the real estate market is in freefall. The funds responded by not allowing redemptions for three to six months.

According to data provided by the BVI, which represents the German investment fund industry, 10 of the funds asset values were worth €27bn combined as of 30 September. The remaining fund, run by Catella Property Group, is worth €390m.

The move is significant for the UK, as German funds have been among the most active in snapping up City of London and West End properties this year. A leading financial restructuring expert said that similar problems are likely to hit UK property funds. "Commercial real estate is going to be the really big sector for our line of work in 2009," he said.

A commercial property analyst said: "German funds are big buyers of London offices. They were forced to sell assets, and the funds would have closed down, had they not implemented the freeze."

Stefan Seip, director general at the BVI, said this was the worst week for fund closures he could recall. "We have never had a situation comparable to this," he said: But he denied the German market was in long-lasting trouble: "To a lesser extent, losses in equity and bond investments led to an over-allocation in real estate and the need for rebalancing these portfolios. In this way, the open-ended real estate investment funds became a victim of the crisis."

DEGI, a part of the London-quoted Aberdeen Asset Management, was the last of the 11 funds to close, late on Friday afternoon, when it froze two of its four German-based funds: DEGI Europa and International, worth €4.3bn combined.

In a statement, DEGI said: "Many investors started to meet their liquidity needs by redeeming their shares in, then as now, profitable and stable investment vehicles, which include open-ended property funds. For this reason, open-ended property funds have been experiencing above-average unit redemptions, and in consequence a shrinking of their liquidity."

DEGI has suspended redemptions for three months, "for the time being".

Catella said it had suspended redemptions "for the protection of its investors", stating the freeze was a response to temporary closures, which were a result of a loss of confidence in such property funds. Catella's fund, "Focus Nordic Cities", for example, had "registered an unusually high number of redemption requests, which the fund management found impossible to meet with the available cash on hand".

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'