Germany and the U.K.:
Ready to Roll

According to Paul Haddock with the London Stock Exchange, the U.K. has published legislation intended to make REITs a reality in January 2007, and a number of the London Stock Exchange’s current quoted property companies have said they are seriously considering becoming REITs.

Haddock says that the U.K. govern-ment listened to the U.K.’s real estate industry while shaping REIT legislation, which will in turn create a positive response from investors.

“Once the U.K. REIT market is established, we expect London will attract a wide range of property companies from both the U.K. and abroad that wish to securitize their assets through a LSE listing as either a REIT or a similar listed entity,” Haddock says. The total investment grade commercial real estate market in the U.K. is estimated to be £600 billion ($1.1 trillion U.S.), with only £40 billion ($70 billion U.S.) of the total currently in the securitized real estate market.”

Haddock says REITs in the U.K. are likely to attract international investors looking to own property globally. “From the investors’ point of view, we think that London, with its $14 trillion U.S. assets under management is best positioned to become the most liquid market for REITs and other listed property assets in Europe,” he says. “London has the capital markets expertise and the lawyers, surveyors and other professionals needed to make a successful listed property market. In addition, London’s international experience investing in overseas markets makes it the most attractive market for REITs that plan to include property from overseas.”

With U.K. REITs in place as of January 2007, speculation now focuses on whether other European countries will follow suit, in particular Germany.

“There are several factors that make the passage of REIT legislation in Germany highly probable,” Kriz says. “First, it’s a good idea to provide tools for business people to help them run their business and provide funding choices. Second, the Christian Democratic Union (CDU) government, as a pro-business, conservative party, tends to support actions which generate private solutions to economic issues. In addition, there are a number of open-ended real estate funds in Germany that are experiencing challenges with issues of liquidity, and REITs may help them generate cash. Finally, German policymakers may not want the U.K. and France to get ahead of them with REITs.”

Dr. Hans Volkert Volckens, managing director with Beiten Burkhardt, a law firm located in Munich, Germany, believes the German REIT is on its way in 2007. “The last hearing is scheduled for Dec. 15, and if it is passed then, G-REITs will begin shortly after,” he says.

While the overall support for REITs in Germany is in place, political attention has focused on the coalition government since the elections for the German Parliament in September 2005. Legal and taxation issues have been discussed and the legislation as it stands now is similar to the U.S. REIT model, according to industry analysts. Some analysts view the recent improvement in property markets and capital markets in Germany as a deterrent to the finalization of REIT legislation, since this structure is not as necessary to an economic recovery as it was last year. Details with respect to the REIT structure in Germany are not yet available, according to EPRA’s Fraser Hughes.

“REITs are anticipated to have the biggest impact in Germany,” Hughes says. “The current securitization level in Germany is approximately 0.5 percent of the underlying market. The global average is around the 6 percent to 7 percent level. Therefore, if the G-REIT structure is successful, there could be a large move from private to public in the German market.”

Volckens adds that the German REIT will be a great tool for investment. “Germany needs a vehicle for international capital, and the G-REIT will be an excellent provider for that,” he says.