Discounts on German open fund disposals rising sharply

While overseas funds line up in serried ranks to scrutinise investment opportunities across Europe, with no apparent shortage of wherewithal, the German open-ended funds that are in the process of winding themselves up carry on day to day trying to get the best prices for their assets, with most of them facing sales deadlines of 2016 or 2017.

Twice a year property advisor DTZ brings out its report on how sales across the stricken funds are progressing. We reported in REFIRE recently on the statistics showing which assets were facing the biggest write-downs, and how the length of time the assets are being offered in the marketplace has a direct effect on the prices ultimately achievable. The evidence seems to show that the discounts on the properties being sold is rising significantly.

The latest DTZ report reminds us that German open-ended funds hold about €82bn of assets around the world, of which €17bn in 17 different funds are currently being liquidated. Of this €17bn, about €4bn needs to be sold in Europe before 2016, so there is some leeway for the sellers in holding out for top prices. So far, €5.6bn of European assets have been sold since 2012, and there is evidence that several funds with later liquidation dates have been actively promoting the sale of higher-quality assets to take advantage of the current buoyant climate to clinch top prices.

According to DTZ’s Magali Marton, head of research in the EMEA region, “Total 2013 sales were €2.7bn, down only slightly from 2012. However, sales were made across a much wider range of countries. Funds moved away from selling UK and French properties to concentrate their activity across Benelux, CEE and Southern Europe. 2013 volumes in these latter three sub-regions combined were of €1.3bn, up from only €0.1bn in 2012. Compared to 2012, sales in 2013 have shifted from an average 7% premium to a significant discount of 13% across Europe.”

The German open funds in liquidation still hold a portfolio of 4.7 million sqm of European properties, mainly concentrated in Germany (32%) and Benelux (19%) whilst Southern Europe accounts for a further 15%. For 2014 target liquidations are disproportionally larger in these three areas.

According to Hans Vrensen, DTZ’s global head of research, “Actual sales recorded in 2013 for theses sub-regions reflected a significant discount on book value above 20% (Southern Europe and Benelux) and 8% in Germany. We expect a similar 10 to 30 percent range of discount in 2014. These pending dispositions should provide very attractive opportunities for funds keen to explore non-core locations across Europe.”