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Andy Schofield

Henderson Research: Closing down sales

​German open-ended funds have a combined net asset value of €82bn and this year’s inflows are on a rising trend, re-affirming the popularity of real estate. Even SEB and KanAm have launched new funds. Of course, a very different picture is playing out for those funds facing liquidation.
Andy Schofield (Director of Research, Property), provides an insightful overview of the current property market, particularly on the challenges being faced by funds in their liquidation phase.

​German open-ended funds have a combined net asset value of €82bn and this year’s inflows are on a rising trend, re-affirming the popularity of real estate. Even SEB and KanAm have launched new funds. Of course, a very different picture is playing out for those funds facing liquidation. They still account for €19bn of assets, nearly a quarter of combined net asset value, and some will face the challenge of selling assets in thin investment markets over the next year or so. Pressure to sell means opportunities will arise for investors to bag a bargain.

Evidence of price discounting has been apparent on assets sold in 2012-2013. According to DTZ, the average discount on book value was -2% and, although this seems insignificant, there were considerable variations. Funds facing a 2014 close, for instance, experienced a particularly wide variation around the average with a +28% premium on the best case disposal and a -50% discount on the worst, the average being close to -5%. Urgent pressure on funds liquidating in 2013 understandably produced a higher average discount of -11%, with the best to worst case discounts from -10% to -28%. In contrast, funds with more distant liquidation target dates and under no great pressure to sell, took full advantage of the hot demand for big lots in Paris and London. These assets were sold at an average premium to book value of c.20%, with no reported discounts.

In line with expectations, disposals in the UK and France attracted an average premium of +12% and +5% respectively. Discounts of around -10% were evident in the CEE and Benelux and, perhaps surprisingly, in Germany. Not surprising, however, was the -20% average discount for disposals in Southern European markets.

The analysis by DTZ reveals there is still 7 million sq m of space to be sold over the next four years with peaks occurring in 2014 and 2017. Half of this space is located in Germany and the Benelux markets, albeit in Germany the vast majority of assets are owned by funds with a 2017 liquidation date. However, if the discounts witnessed from the 2012-2013 disposals were to be repeated next year, there should be good buying opportunities in the Benelux region (particularly in the Netherlands) and in Southern Europe where liquidity is thin and investment volumes are recovering very slowly. In addition, this summer saw the first funds that had exceeded their wind-down period being forced to surrender unsold assets to the trustee banks. These banks are arguably less inclined to preserve value, providing a further potential source of opportunity for investors.

Andy Schofield

Andy Schofield

Director of Research

Andy's biography