OUTSOURCING GERMAN CORPORATE REAL ESTATE VIA REITS

Martin Becker and Karl Werner Schulte

ERES from European Real Estate Society (ERES)

Abstract: The introduction of REITs is expected to have a large impact on the market for indirect real estate investment in Germany. Whereas non-listed investment vehicles traditionally have been very successful in attracting capital from German private and institutional investors, the listed sector has not developed so far. In fact, the market capitalisation of German listed property companies amounts to only 0.49% of total commercial real estate, representing a market capitalisation of app. 8 billion Euros. An established listed real estate segment, triggered by the introduction of REITs, offers an alternative exit channel for German corporates that traditionally hold a large proportion of their real estate on balance sheet. Recently, the awareness of German corporates for efficient management of their real estate assets has increased. The tax incentives aligned with the introduction of REITs may lead to a large proportion of new IPOs to be drawn from corporate real estate spin-offs. However, alternative exit channels, e.g. the sale of property portfolios to financial investors or Credit Tenant Lease securitisation, have to be considered when estimating the REIT IPO volume. Based on a survey, this paper therefore analyses the German market for corporate real estate and identifies the market volume available for REIT spin-offs. It furthermore discusses the fundamental requirements for corporate real estate monetisation, from the investorís, non-property companyís and legislatorís perspectives. Particularly the introduction of Private REITs would enable property portfolios to be structured and reach tenant diversification pre IPO in order to meet capital market and investor's requirements. However, this paper identifies more attractive sources of funding and exit channels for corporate real estate.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2006-01-01
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