Corona pandemic, inflation, and Ukraine war have not left popular open real estate funds among investors untouched. Falling returns can be the consequence.
Open real estate funds are popular among investors and are widely considered a safe investment. However, returns have declined in recent years, partly due to the corona pandemic. The rating agency Scope Analytics recently examined 17 open real estate funds. This led to downgrades for six funds and only two funds improved. There were no changes for the remaining funds.
The law firm MTR Rechtsanwälte fears that this trend could intensify in the future. Since open real estate funds primarily invest in commercially used properties with offices, commercial spaces, shopping centers, retail outlets, etc., the risks have increased due to current developments. The corona pandemic has already caused a setback for commercial properties. Now, inflation, the difficult economic situation due to the Ukraine war, or the need for renovation could further suppress return expectations. The impacts of the corona pandemic are still not foreseeable in many industries, threatening rent losses or vacancies in commercial properties.
Many open real estate funds had run into major difficulties due to the 2008 financial crisis and had to close. A key reason for this was that too many investors wanted to redeem their shares, and the fund companies could not meet this demand.
To prevent something like this, the structure of open real estate funds was revamped in 2013. Investors can no longer redeem shares acquired after July 21, 2013, at any time. The shares must be held for at least two years, and there is a one-year notice period. This is to prevent many investors from withdrawing their shares in a short period. If the fund company cannot fulfill the redemption requests, the redemption of shares can be suspended. In the worst-case scenario, closure and liquidation of the fund threaten.
The Federal Court of Justice had already decided with a ruling on April 29, 2014, that investors have claims for damages if they were not informed about the risk of suspension of share redemption and closure of the funds during advisory meetings (Case No. XI ZR 477/12 et al.).
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