Storm alert for the property market

Wednesday, 27 Oct 2010, 19:20


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Within a few weeks, three large real estate funds have been closed: 130,000 investors are in need to face their ruins. For experts this is just the beginning.

There is a storm warning on the real estate markets reports the German financial newspaper Handelsblatt: Prices for commercial real estate are plummeting in the U.S., they are about 45% below the peak of the housing boom in October 2007.

Also in many cities, office buildings are left empty. 6.4% it is for London's West End, where the economy is booming again, and 23.4 percent in Dublin, where the financial crisis is far from over. The vacancy rate nowadays equals the value loss in the near future.

"It will hit bad locations especially hard," warns real estate expert Christian Ulbrich, European head of real estate consultant Jones Lang Lasalle.

The recession has now offically hit the real estate funds. Last Friday, Degi Europe, founded in 1972, gave up with 1.3 billion euros in assets. 90 000 investors worried about their money. Late September, Kanam U.S. real investment initiated its resolution. Now, another eight real estate funds report that they are currently not liquid.

See below, a man enters the Morgan Stanley building in New York which featured the newly liquidated 852 million euro “P2 Value” real estate fund:

Real estate funds were so far being considered as reliable yields. They are an investment in property values, which is designed to protect against inflation risks. Its particular charm is that investors can bet on multiple properties even with small sums of money starting at €50.

The uncertainty is quite big now. Lawyers worldwide are already moving into position. Experts are alarmed: "There will be a shakeout among the open real estate funds," says Steffen Sebastian from the Department of Real Estate Finance at the University of Regensburg.

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