The corona pandemic, inflation, and the Ukraine war are also leaving their marks on the open real estate funds that are popular among investors. Declining returns may be the result.
Open real estate funds are popular among investors and are often considered a safe capital investment. However, returns have been declining in recent years, partly due to the corona pandemic. The rating agency Scope Analytics recently scrutinized 17 open real estate funds. This led to rating downgrades for six funds, and only two funds were able to improve. There were no changes for the remaining funds.
The business law firm MTR Rechtsanwälte fears that this trend could become more pronounced in the future. Since open real estate funds primarily invest in commercially used properties with offices, business premises, shopping centers, retail stores, etc., the risks have increased due to current developments. The corona pandemic has already dampened commercial real estate. Now, inflation, the difficult economic situation due to the Ukraine war, or refurbishment needs could further lower return expectations. The impacts of the corona pandemic are still unforeseeable in many sectors, posing risks of rental defaults or vacancies in commercial properties.
Many open real estate funds faced great difficulties during the financial crisis of 2008 and had to close. A key reason for this was that too many investors wanted to return their shares, and the fund companies could not handle it.
To prevent such occurrences, the structure of open real estate funds was revamped in 2013. Investors can no longer return shares acquired after July 21, 2013, at any time. The shares must be held for at least two years, and a one-year notice period applies. This aims to prevent the mass withdrawal of shares by investors within a short period. If the fund company cannot fulfill the return requests, the redemption of shares may be suspended. In the worst case, closure and liquidation of the fund threaten.
The Federal Court of Justice already ruled on April 29, 2014, that investors have claims for damages if they were not informed about the risk of suspension of share redemption and fund closure during advisory discussions (Ref. XI ZR 477/12 et al.).
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