Fear of write-offs - Almost six billion euros withdrawn! Investors flee from open real estate funds
Open-ended real estate funds were once considered to be a similarly safe investment as fixed-term deposits. But write-offs and distress sales have alarmed investors. They are withdrawing their assets in droves - and the prices of fund shares have fallen on the stock exchanges.
Open-ended real estate funds were once touted as one of the safest asset classes for private investors. Many banks even recommended them to their customers as an alternative to fixed-term deposit accounts when larger sums were involved. This explains why, according to the analysis firm Scope, German investors have now parked around 130 billion euros in such funds.
Those who have noticed are already leaving in droves: According to research firm Barkow Consulting, investors withdrew a total of 5.9 billion euros from the funds in 2024, with 611 million euros being withdrawn in December alone.
This is all the more serious because it is not that easy for investors to say goodbye to their fund shares: Anyone who does not want to resell them on the stock exchange but wants to cancel them must notify the fund company one year in advance - and have owned the shares for at least two years by that time. This means that the real wave of migration began as early as 2023 - the current figures only show the completion after the waiting period has expired.
In addition to all these disadvantages, there is now a crucial one: the prices of fund shares have been falling for months - but many investors do not yet know this. This is because the official prices of the issuing fund companies continue to show an increase in value. On the secondary market, however, i.e. on the regional stock exchanges in Hamburg, Frankfurt or Munich, the same funds are sometimes listed 20 percent lower.
Open real estate funds have never been return boosters. Large flagships such as the "Hausinvest" fund from Commerzbank subsidiary Commerz Real rarely achieve more than two to 2.5 percent return per year. Over the past five years, the "Hausinvest" fund has achieved a total of 11.3 percent . If you consider that such funds also charge an issue premium of up to five percent, it takes at least two years before investors are even in the black.
Since interest rates on current and fixed-term accounts have now risen, the achievable fund returns appear rather meager in comparison.
Real estate is generally considered a safe investment, and as rents rose, prices usually rose too. And when interest rates were low and more people could afford property, real estate prices exploded.
For those who could not afford their own house, apartment or even a rented property, it seemed all the more interesting to invest a fraction of the money in open-ended real estate funds in order to profit from rising real estate prices.
But very few of these funds invest in residential properties, whose prices fluctuate little - even in a recession. The majority of the portfolios are usually made up of commercial properties, and their prices have fallen considerably in recent years.
The demise of brick-and-mortar retail is leading to empty shops around the world, shopping centers that are only partially occupied, and even affects some warehouse and logistics properties. The trend towards home or flexible offices has reduced the need for office space in many places. And the sword of Damocles of energy efficiency hangs over everything. Due to high heating costs, office buildings from the 70s and 80s in particular are hardly finding new tenants or have to be renovated to make them more energy efficient at great expense.
Added to this are the increased interest rates, which are driving up the monthly installments for all real estate investors who bought on credit. Many real estate developers and project planners can no longer cope with this additional burden. The bankruptcy of the Signa Group was just the tip of the iceberg. When such imbalances lead to distress sales, they depress the entire price level in the market.
The industry has so far concealed its problems well. This development is not visible in the prices of the funds that the fund companies put in the windows of the banks. The price charts move upwards as if pulled by a string, interrupted only by the days of distribution. This is because real estate, unlike shares on the stock exchange, is not traded every day. Many properties are unique, which makes comparison difficult. Conversely, this means that a price that cannot be determined does not have to be devalued.
The valuation is the job of special appraisers who check the valuations several times a year. This can be done based on real estate transactions in the vicinity of the location or based on the annual rental income multiplied by a market factor. The second method is usually simpler - and it offers advantages for fund managers: As long as a property is still rented out, its value does not have to be changed. Even an empty property can still be valued on the basis of the expected rent, provided the owner can convince the appraiser that there are interested parties at this price. In this way, many fund managers have "stretched" their need for depreciation. One could also say "concealed".
But at some point the difference between market and book value is so great that the appraisers pull the plug. This happened at the end of June 2024. At that time, the fund company Union Investment reported a need for write-downs of 600 million euros for its "Uni Immo Wohnen ZBI" fund. As a result, the portfolio value suddenly fell to just four billion euros. The value of the fund shares immediately collapsed by 17 percent to around 42 euros. Half a year later, the fund company itself bought back the fund shares for 42.27 euros (as of February 25, 2025). On the Hamburg stock exchange, investors initially received just over 30 euros for this. Currently, it is back to 37.50 euros - a difference of 11.2 percent to the price of the issuing fund company.
There are plenty of such differences in the market, as the following table shows. Investors are particularly skeptical about the real estate fund KanAm Leading Cities Invest (DE0006791825), which had to write down its portfolio for the third time in December and has been selling properties for months to raise money for the outflow of funds.
The official price set by the fund company KanAm has already fallen by 26 percent from 102.40 to 75.53 euros since 2023. On the Hamburg Stock Exchange, the shares are trading even lower: there, investors are offered just 61.94 euros per share when they sell (as of February 25, 2025), which is 18 percent less.
It is completely unclear whether and to what level the prices of fund shares will recover. The price slide on the German and many European real estate markets seems to have stopped for now. But only the fund managers themselves and the appraisers know how far the values in the fund portfolios have already deviated from reality. A further fall in prices cannot therefore be ruled out, even if the price fluctuations have calmed down somewhat at the moment.
As always in such cases, dubious middlemen try to profit from investors' uncertainty. Some investors received an offer from SCP Investments Limited, based in the Marshall Islands, via their depository bank. Banks are obliged to forward such offers; they say nothing about their seriousness.
In the case of SCP, investors received a "request to submit offers to sell". SCP Investments called on them to submit an offer to sell up to a maximum price. However, the maximum price stated was significantly lower than the current stock market price. SCP Investments could therefore have immediately sold the collected shares itself at a higher price. Fund investors should therefore ignore such letters.
There are now three options for investors who hold such fund shares:
1. Sit out the crisis and hope that the fund values recover.
It seems certain that there will be a need for correction, as property prices have only stabilized and interest rates remain high. Even if prices in Germany are slowly rising again, a return to previous levels is not to be expected any time soon. The question is whether the depreciation is sufficiently factored into the current price. Therefore, the "wait and see" tactic could be the most expensive.
2. Cancel fund shares with the fund company, register for repayment and then wait for the grace period.
It is completely unclear what your share will be worth in a year. The current stock market discount compared to the window price of the fund company is at best a rough indication. Things could get worse, and the fund price could fall even further. However, if things go better against expectations, it would not be possible to withdraw the termination.
3. Sell the fund shares now on the secondary market/stock exchange.
This solution is also likely to result in high losses for many investors. The capital market does not give you anything for free; in case of doubt, a buyer will demand an additional risk discount on the price of the fund shares. Nevertheless , a sale is probably the best choice if you consider what investment alternatives are available to you with the money you have raised.
The hope that your fund will make up for its losses is offset by the very real prospect of lucrative fixed and overnight interest rates. Even a fixed-term deposit account currently yields more interest in a year than a real estate fund.
Fixed-term deposit comparison by FOCUS online If a battered fund such as the Uni Immo Wohnen ZBI were to return to its original level, this would correspond to an incredible price increase of 20 percent. It is more realistic that the fund will grow from its current level at the old rate again - provided no further write-downs are necessary. Even in good times, the ZBI only managed an annual return of 2.54 percent at best, according to Union Investment.
Statistically speaking, a stock ETF, for example on the MSCI World Index, offers significantly higher returns of up to seven percent per year on average. But that is a different risk class and may not be an option for extremely risk-averse real estate investors.
In any case, it would most likely be better to withdraw your money now at a loss and invest it in a more promising investment than to watch the open-ended real estate funds decline for years to come.
Law firms have already become aware of the issue and are planning lawsuits against banks that have recently sold such funds to private investors - even though they should have known about the risk of devaluation because the stock market prices had already moved far away from the official issue prices.
The crucial question will be: Did they explicitly inform their customers of the potential risk of loss associated with these funds? Or did they perhaps conceal the risk of write-downs that had already been factored into the stock market? The fund might then have had to be classified in a completely different risk category and could no longer be considered safe.
If this could be proven on the basis of the consultation minutes, at least investors who bought after the first major KanAm devaluation in 2023 could sue for damages. There is no exact date from when this could apply - let alone a legally binding statement.
FOCUS
