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BaFin acknowledged weakness in funds divulging all relevant information
When REFIRE last updated readers on Germany's open-ended property fund sector in Issue 257, Leading Cities Invest had just become the first fund to enter formal liquidation. The situation has since moved quickly. By the end of June, two further funds had followed: Habona Nahversorgungsfonds Deutschland suspended redemptions on 30 June, while Aachener Spar- und Stiftungsfonds — a fund serving primarily church-affiliated institutions — entered liquidation the same day, attracting little public attention.
That brings the total number of suspended or liquidating funds to six. Sector-wide sales of fund units fell to an all-time low of €120 million in April, according to Barkow Consulting. Germany's open-ended property fund sector now finds itself in a darker place than at any point since the post-Lehman closures of 2008-09.
But the headline count, troubling as it is, does not capture what is most significant about recent developments. What has changed over recent months is not simply the scale of the problem; it is the quality of the analysis now being applied to it. For the first time, the mechanism behind these failures is being described clearly and publicly, and it has less to do with interest rates than many in the industry have assumed.
How the failures actually happened
Veteran fund analyst Stefan Loipfinger's InvestmentCheck reporting provides perhaps the most forensic examination of the crisis to date. His conclusion is uncomfortable. The common factor is not simply deteriorating markets but delayed recognition of falling property values, allowing portfolios to appear remarkably stable long after market conditions had turned.
Habona illustrates the pattern. After expanding its portfolio during 2022 and 2023, it sold just one property, and only after first adjusting its valuation downward — a detail absent from the subsequent announcement celebrating a sale "slightly above market value." KanAm's Edinburgh Greenside property provides an even starker example. Carried at more than €20 million, its valuation was eventually reduced to €12.2 million before sale, crystallising losses that investors had not previously been led to expect.
The mechanism matters because it explains something that has puzzled observers throughout the downturn. Why did better-informed investors — independent advisers and institutional investors — leave these funds so much earlier than retail investors? Loipfinger's answer is that they recognised the valuations had become detached from market reality before the write-downs finally appeared. They exited while published net asset values still reflected yesterday's market. Retail investors remained invested until those adjustments eventually arrived. In that interpretation, delayed valuations did not simply accompany the crisis; they helped drive it.
That interpretation inevitably raises questions about the institutions responsible for assessing and supervising the sector. Three of the six failed funds still carried Scope ratings of "BBB" — classified as "balanced" risk — as recently as last year. Wertgrund, meanwhile, received Scope's "Best Asset Manager" award for ten consecutive years, most recently in November 2025.
More striking still has been the recent change in tone from Germany's financial regulator. At BaFin's annual press conference, President Mark Branson acknowledged publicly that existing risk indicators for open-ended property funds "do not always incorporate all relevant risk information." Executive Director Thorsten Pötzsch has since called for reforms at European level.
Those are unusually candid admissions from a regulator that has overseen the sector throughout a period in which more than €20.5 billion of fresh capital flowed into open-ended property funds. Much of that money continued to arrive through bank and savings bank distribution networks. At the same time, identical fund units traded on secondary markets at an average discount of 18.3% to their published net asset values. Whether advisers fulfilled their best execution obligations by disclosing that identical units were available more cheaply elsewhere is becoming an increasingly important legal question.
The sector begins to divide
Yet the crisis is no longer affecting every fund equally, and for institutional investors that distinction is becoming increasingly important.
The five funds managing more than €10 billion each — Deka-Immobilien Europa, Hausinvest, Westinvest Interselect, UniImmo: Deutschland and UniImmo: Europa — recorded an average decline of just 0.75% over the twelve months to April 2026, compared with an average fall of 1.65% across the sector. Greater diversification across countries, sectors and acquisition vintages has provided resilience that smaller, more concentrated funds have struggled to match.
André Haagmann, recently appointed chief executive of Union Investment Real Estate, believes the peak in redemptions has probably passed, provided interest rates remain broadly stable. Union Investment has already returned selectively to the acquisition market after spending much of the downturn selling assets above their most recent valuations. Net outflows approaching €4.9 billion since 2023 remain substantial, but they have proved manageable given the scale and liquidity of the group's portfolios. While that is not yet a recovery, it does suggest that Germany's open-ended property fund sector is no longer moving as one.
Against that background, events at Munich-based investment manager Deutsche Finance point to a different and potentially more significant set of questions. Unlike the suspended open-ended retail funds, Deutsche Finance manages a broad range of institutional and private-market real estate vehicles with billions of euros under management. Its recent regulatory difficulties therefore extend the discussion beyond retail liquidity problems into the institutional investment market.
Since 2005, the group has raised approximately €7.3 billion in equity, around €1.5 billion of it from some 50,000 retail investors, with the remainder coming from institutional investors. In June, BaFin first requested extensive documentation before appointing a special representative to oversee the process — an unusually strong regulatory intervention.
At the same time, auditors have highlighted going-concern uncertainties across several vehicles, while 17 of the group's 21 public funds have yet to publish their 2024 annual accounts. Whether Deutsche Finance ultimately proves to be an isolated case or the first indication of wider institutional stresses remains to be seen. Either way, it demonstrates that the sector's problems are no longer confined to smaller retail funds.
What investors should watch next
The Fund Risk Limitation Act, which entered into force in April and which REFIRE examined in Issue 255, requires funds to maintain at least two liquidity management instruments. Scope broadly welcomes the reforms, although providers have adopted different approaches ranging from redemption fees to temporary gating mechanisms.
The more fundamental investment problem, however, remains unchanged. Scope argues that open-ended property funds must once again offer a meaningful return premium over risk-free investments if investor flows are to recover. At present, five-year Bund yields remain sufficiently attractive that many open-ended property funds still struggle to demonstrate a convincing return premium.
Professor Steffen Sebastian of IREBS argues that more fundamental reforms remain necessary, including more frequent property valuations and lower distribution costs. Neither appears imminent.
For investors already caught in suspended funds, the legal framework has changed little. Suspensions may continue for up to 36 months before liquidation becomes mandatory if liquidity cannot be restored. Secondary-market sales remain possible, albeit typically at substantial discounts, while potential claims relating to unsuitable advice remain subject to statutory limitation periods.
Three months ago, the principal question facing Germany's open-ended property fund sector was how many more funds might suspend redemptions. Today, a different question has become just as important: why did so many fail in such similar ways?
Six funds are now suspended or liquidating. BaFin has publicly acknowledged shortcomings in existing risk indicators. At the same time, the largest diversified funds appear to be stabilising, while Deutsche Finance suggests that a different set of questions may now be emerging around institutional exposure, governance and transparency.
Perhaps the most honest assessment comes not from a regulator, a rating agency or a commentator, but from one of the fund managers themselves. As KanAm told its own investors, "a sustained recovery is not to be expected in the foreseeable future." That may also be the most realistic assessment of where Germany's open-ended property fund sector now stands.