After a few weaker years, the market for closed-ended property funds is growing, almost at a rapid pace in the last year. An analysis of Bundesbank statistics found that it rose by around 13% in 2019. While net fund assets for all funds came to just EUR 23.4 billion at the end of 2018, the figure climbed to about EUR 26.8 billion by the end of 2019. The trend can be seen even more clearly by looking back over 24 months (December 2017 to December 2019), with growth of 21% or around EUR 4.7 billion. The Bundesbank groups together closed-ended vehicles for private and institutional investors under the heading of closed-ended property funds.

Michael Schneider, Managing Director of INTREAL, commented: “The market for closed-ended property funds is once again experiencing a robust upward trend. Since the introduction of the new regulations under the German Investment Code, closed-ended property funds have been launched as investment KGs. With this, the closed-ended vehicles seem to have adopted a ‘new look’ and found their target customers and investment focal points again.”

Net inflows of one billion euro expected

Looking ahead to 2020, Schneider said: “I think that the good performance will continue in 2020. I am anticipating net inflows of well over one billion euro for the year as a whole. We can also see the positive trend in talks that we are currently holding with providers. Various new closed-ended AIFs will come onto the market in the months ahead. Following the major market consolidation after 2008, a smaller number of providers has emerged who provide the market with new products on an ongoing basis.”

The KVG INTREAL service manages closed-ended AIFs with net assets of around EUR 5.1 billion. At around EUR 5.0 billion, closed-ended property special AIFs account for the lion’s share of this, and the figure is growing. By contrast, the share of closed-ended retail AIFs is far smaller at EUR 92 million. INTREAL did not establish any closed-ended funds for private investors in 2019. INTREAL does not have any specific plans for new vehicles in the next few years. By contrast, further products are being prepared for open-ended mutual funds and strong growth is expected.

The Bundesbank’s statistics recorded a total of 1,446 closed-ended property funds for institutional and private investors at the end of 2019. Schneider commented: “The raison d’être for closed-ended property funds is the two investor groups. They can be an interesting building block in asset investment for wealthy, experienced private investors with a long-term investor horizon and who are aware of the risks. This particularly applies to specialised funds involving a particular country allocation or foreign currencies, such as with US property. For institutional investors, closed-ended AIFs are used predominantly as club deals for large-volume individual investments with two to four investors. This opens up investment opportunities beyond the usual investment limits for individual properties in the open-ended special AIF.

Relatively small market for closed-ended funds

All in all, however, closed-ended property funds remain significantly less important than their open-ended counterparts. Figures from the Bundesbank statistics show that they account for only about 12% of open-ended vehicles overall. According to the Bundesbank, the net fund assets of all open-ended property funds (mutual and special funds) came to EUR 226.2 billion in December 2019 and increased by EUR 28.3 billion in 2019 alone. Closed-ended property funds, on the other hand, come in at just around EUR 26.8 billion in net fund assets.
Both institutional and private investors rank the risk-diversified, open-ended funds high up on the popularity scale. This is turning closed-ended funds into a niche product for special investment cases and selected target customers only, both now and in the future.

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IntReal International Real Estate Kapitalverwaltungsgesellschaft mbH (INTREAL) continued its growth in 2019. Assets under administration (AuA) amounted to around EUR 31.3 billion at the end of 2019 (end of 2018: EUR 24.4 billion). Rising by EUR 6.9 billion, the earnings figure for 2018 (EUR 5.8 billion) was surpassed once again. INTREAL had 161 property funds under administration as at the end of 2019, an increase of 23 compared with the previous year. The funds manage 1,331 properties in total (2018: 1,100).

Michael Schneider, Managing Director of INTREAL, said: “INTREAL celebrated its tenth anniversary in 2019. One particular milestone in this anniversary year was when AuA hit EUR 30 billion in November 2019. Naturally, this rapid development in our business means challenges as well. It is a matter of the utmost importance to us to keep the quality and professionalism of our services at a high level. We have invested extensively in personnel, processes and IT to ensure this goal. Over the past year, we hired 53 fund experts across all divisions, bringing our headcount to almost 300 by the end of 2019. The new hires work at our head office in Hamburg and at our new office locations in Frankfurt and Luxembourg. Qualified staff and their systematic ongoing development are still our most important investment for our complex activities. This is true regardless of the advances in technology and digitisation.”

High investment in IT and creation of new Treasury department 

Parallel to its recruitment activities, INTREAL has invested extensively in its IT. The processes and applications specific to funds were optimised, bringing them to the state-of-the-art with an eye on the future. Examples include licence agreements for the new SAP Release S/4HANA and the addition of a number of new functionalities to the bison.box software solution from control.IT. “This has also consolidated our edge over our competitors. At the same time, it enables our IT experts to serve the demand for our fund-specific IT solutions. Since 2019, our interest in easol GmbH has allowed us to offer all real asset managers a holistic IT solution,” continued Schneider.

A third plank of our quality assurance is ongoing projects on the latest key issues, such as ESG or the improvement of the organisational structure. INTREAL’s Managing Director added: “Over the past year, for example, we bundled out specialists for banking, financing and liquidity management, who were spread throughout the company, in the newly created Treasury department. This facilitates the more efficient handling of the high processing volumes in all areas. Above all, the issues of managing and investing liquidity have gained in significance as a result of the growing number of mutual property funds under administration. Furthermore, additional services and analysis and consulting activities for our customers have also been assured.”

Partner Funds division grows by EUR 3.1 billion 

Accounting for approximately 60% of total AuA, Partner Funds is still the most important of INTREAL’s segments. It had a volume of EUR 18.6 billion at the end of 2019 (2018: EUR 15.5 billion). In its Partner Funds segment, INTREAL offers asset managers and project developers not licensed as AIFMs all services for the issue and administration of AIFs. INTREAL’s Schneider added: “In addition to open-ended special funds, we also launched more mutual property funds in 2019. The fund partners are primarily property managers who have been serving institutional investors to date and now want to make their expertise available to private investors as well. We also see the strong product demand among private investors on the one hand and providers’ pronounced property expertise on the other as an additional growth field and an ideal product diversification for INTREAL.”

Demand for AIF services continues to rise 

INTREAL’s second major division is AIF Services, which performs services such a fund accounting, controlling, reporting and investment/risk management for other licensed AIFMs. This segment’s AuA grew to EUR 12.7 billion in 2019 (end of 2018: EUR 8.9 billion). Schneider explained: “The business momentum in AIF Services has since overtaken that of Partner Funds. A number of AIFMs on the market are facing rising regulatory costs while returns on property are diminishing at the same time, and so they need to become more efficient. One approach is to step up outsourcing, which not only reduces costs, but also allows access to specialist expertise. A third advantage is the focus on core property competence, which – as our figures show – is proven to lead to faster growth.”

INTREAL to expand Luxembourg location in 2020 

INTREAL is assuming that the business performance in fund business will remain positive in 2020. INTREAL’s Schneider said: “I predict that growth in 2020 will at least match the 2019 level – so around EUR 6 billion. All of INTREAL’s segments will continue to grow significantly. The planned increase in institutional fund products has already been largely secured by capital commitments and definite seven- figure property investments.”

Furthermore, the expansion of the Luxembourg location will also be a priority in 2020. Schneider commented: “We anticipate a great deal of potential in Luxembourg, as additional product variants can be implemented there and more international investors can be addressed than with German investment vehicles alone. Several specific funds are currently in the preparation and implementation phase. Parallel to this, we are currently conducting very promising talks with interested partners.”

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Net inflows into open-ended mutual property funds have risen by more than 100% compared to the same period of the previous year in the first eight months of 2019, according to BVI. Inflows amounted to around EUR 7.3 billion between January and August in 2019, after around EUR 3.5 billion in the same period of 2018. This is also significantly higher than in previous years: Inflows had amounted to EUR 4.1 billion in the first eight months of 2017 and EUR 3.9 billion in the same period of 2016.

Which fund issuers have benefited especially from this cash wave? Despite there being various new providers of open-ended mutual property funds, the majority (92%) of the fresh money – around EUR 6.7 billion – went to the four major providers. Union Investment claimed the biggest amount at EUR 2.1 billion, followed by the Deka Group with EUR 1.7 billion. Third place goes to the Deutsche Bank subsidiary DWS at EUR 1.7 billion, with Commerz Real taking the fourth spot with around a billion euro.

Michael Schneider, Managing Director of INTREAL, commented: “These very high inflows show that there is currently too much money for too few products. Demand from private investors is set to keep on rising given the threat of negative interest rates on private accounts as well. However, the established funds and providers are apparently having difficulty in quickly investing such large amounts under their existing fund strategies. As a result, almost all providers have pulled the ripcord and some are now working with restrictive quotas for their funds.”

How are things looking for the “new” funds to be had? Swiss Life AIFM is one of the most successful of the “new” providers this year with its Working & Living open-ended fund. The company has increased its net fund volume by around EUR 209 million in the first eight months of 2019. The KanAm Grund Group and its Leading Cities Invest fund have taken in net new cash of around EUR 140 million. The service AIFM INTREAL, which manages multiple mutual funds, has reported impressive net growth of around EUR 114 million in this segment. For example, in addition to funds for several AIFMs, INTREAL manages Fokus Wohnen Deutschland, the fund from INDUSTRIA that specialises in residential property.

INTREAL’s Managing Director Schneider feels that “taking the established, conventional sales structures into account, the popularity being enjoyed by new products is very encouraging. However, investors are also happy to see providers – new and established alike – starting up other product alternatives. This way the distribution of demand can shift more towards new products moving ahead. On the one hand this is because the old funds have called a halt. On the other, it is because of the new funds with attractive and alternative investment strategies out there. One example of this is ‘Habona Nahversorgungsfonds Deutschland’, which was launched recently and only invests in food retailers that operate at a local level.”

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In the first half of 2019, IntReal International Real Estate Kapitalverwaltungsgesellschaft mbH (INTREAL) continued on the growth path of the previous years. Germany’s leading third-party real estate AIFM thus increased its assets under administration (AuA) to EUR 27.2 billion as at the end of the second quarter of 2019. This corresponds to growth of around 11.5% compared to the figure for the year 2018 (EUR 24.4 billion). Compared to the same date in the previous year, INTREAL even managed to increase its assets under administration by a third (AuA on 30 June 2018: EUR 20.4 billion), thus matching the strong business performance of the past years. The number of funds administered by INTREAL and of properties contained in these funds also developed positively. In the first half of 2019, the number of funds rose to 141. The number of properties under administration surpassed the 1,200 mark at the end of June 2019, increasing by 88 to the current total of 1,214 properties.

Michael Schneider, Managing Director of INTREAL, comments on the current figures: “Together with our fund partners, we remain on a stable growth path and are pleased to be able to present very good half-year results again. Despite – or perhaps because of – the wide range of political and economic uncertainties, property-based forms of investment remain highly popular with both institutional and private investors. I expect the dynamic business growth to continue in the second half of 2019, with assets under administration reaching EUR 30 billion.”

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easol GmbH (easol), a joint venture between third-party AIFM INTREAL and control.IT Unternehmensberatung GmbH (control.IT), has gained a Sales Director. Marko Broschinski (52) has become Sales Director of the recently founded company specialising in all-in-one IT solutions for the management of real assets. For the last two years, the banking graduate and Master of Business Administration (Frankfurt School of Finance) has been a freelance consultant for companies. Previously, among other things, he was Regional Coordinator for East Africa / Country Director for Tanzania at Sparkassenstiftung für internationale Kooperation for two years and worked at Bankhaus Carl F. Plump & CO AG for 21 years, for the last eight of which he was on the board of directors.

During his 29-year career, Marko Broschinski has managed selection processes and the implementation of software solutions in various areas. Among other things, he has helped to select new digital bank systems, core bank systems and CRM systems in various positions, and managed their subsequent introduction. His work has also focused on establishing and optimising digital solutions in controlling. Klaus Weinert, Managing Director of easol, says: “With Marko Broschinski, we have secured a sales expert who is a perfect match for our target customer group and has a great deal of experience with all issues regarding IT solutions.”

Markus Schmitt, also Managing Director of easol, adds: “Since easol was founded a few weeks ago, we have received numerous enquiries and are seeing a lot of interest in our new IT solution. With Marko Broschinski, we have acquired a consummate businessman who will help turn easol into a success story.”

Marko Broschinski adds: “I am convinced that easol solution will significantly professionalise and improve the digital management of real estate and other real assets. I am delighted with the trust that the management of easol has placed in me.”

easol was founded in June 2019 and offers an all-in-one IT solution, “easol solution”, for investments in real estate and other real assets such as aircraft, ships and photovoltaic plants. The components of easol solution are preconfigured for the requirements of fund providers and real asset managers, are fully integrated and have been tested thoroughly in practice. Assets with a volume of over €30 billion are currently managed in terms of IT using easol solution. Among these assets are properties belonging to the HIH Group, including INTREAL.

control.IT Unternehmensberatung GmbH (control.IT), a provider of asset and portfolio management software, and IntReal International Real Estate Kapitalverwaltungsgesellschaft mbH (INTREAL), Germany’s leading third-party AIFM, have established a joint venture. The new company operates as easol GmbH (easol) and offers an all-in-one IT solution, “easol solution”, for investments in real estate and other real assets such as aircraft, ships and photovoltaic plants.

easol solution consists of three parts. Its core is the first part, “easol suite”. This combines various different software products for real asset management that are established in the sector, such as SAP ERP, bison.box and iX-Haus, to form an all-in-one solution. The accompanying services, which are particularly important in the set-up and onboarding phase, are offered under the label “easol service”. Because an IT solution cannot work without secure, efficient and reliable infrastructure, all users of easol are provided with the necessary IT infrastructure (“easol infrastructure”) as the third part of the solution.

The components of easol solution have already been configured for the requirements of fund providers and real asset managers, are fully integrated and have been tested thoroughly in practice. Assets with a volume of over €30 billion are currently managed in terms of IT using easol solution. Among these assets are properties belonging to the HIH Group, including INTREAL.

Klaus Weinert, a managing director at easol, comments: “With easol suite, we offer a standardised IT solution that makes it easier to manage real assets. This saves on high consulting and implementation costs. In addition, all data within easol suite are highly consistent, meaning that the laborious process of entering data manually in different systems, which offers leads to errors, is a thing of the past.”

Markus Schmitt, also a managing director at easol, adds: “Customers can use easol suite in the cloud model in line with the principle of software as a service (SaaS). This means that they only have to rent an IT solution that is operated by us. This convenient model from the user’s perspective is currently seeing growing demand on the market.”

The new company also has an Advisory Board chaired by Prof. Wolfgang Schäfers, professor of Real Estate Management at the IREBS (University of Regensburg). The Advisory Board also includes Andreas Ertle, managing director of INTREAL, and Jan Körner, managing director of control.IT. Advisory Board Chairman Schäfers comments: “The easol ecosystem will be systematically enhanced. We are continuously observing the global market for proptechs and incorporating promising solutions. For example, easol works closely with the data room solution EVANA and the underwriting software FUEL.”

The idea behind easol is based on the community concept and the principles of a sharing economy. “The easol community is the community of users who work with easol solution on a daily basis. If an application is technologically enhanced, the improvement is also available to all users. The solution is constantly evolving in practice and from practice, while leaving enough room for individual requirements,” explains Weinert.

The managing directors Klaus Weinert and Markus Schmitt have decades of experience at the interface of IT and real assets. Klaus Weinert is a business administration graduate who has worked as a project consultant and developer since 1992. He is the founder and a managing director of control.IT. Markus Schmitt is a business graduate and managing director of IntReal Solutions GmbH. Since 2001, he has worked in a range of different sectors in the field of software development, project management, data centre management, and software as a service (SaaS) and cloud solutions.

Service AIFMs have become key players on the market for open-ended special property AIFs in Germany. This has been found by a comparison of the market shares of management AIFMs and service AIFMs in new business. Open-ended special property AIFs raised around EUR 3.6 billion in total in 2012. Service AIFMs accounted for EUR 752 million of this, corresponding to a market share of 21%. Six years later, in 2018, the share of service AIFMs has virtually tripled to 59% (EUR 4.7 billion of EUR 8.1 billion).

Michael Schneider, Managing Director of INTREAL, commented: “More than half the money that institutional investors invested in open-ended special property funds went to service AIFM funds. This confirms the trend towards the division of work into administration on the one hand and property management on the other. After around ten years, the service AIFM principle is finally established on the market. As regulatory and other administrative requirements will keep on rising, I predict that service AIFMs will continue to gain in significance.”

INTREAL plays a key role in this development. Its share of the proceeds of the three major service AIFMs has been between 30% and 50% since 2013. INTREAL has consistently raised funds of more than
EUR 1 billion per year since 2015, and in 2017 it even took in more than EUR 2 billion. Michael Schneider added: “INTREAL has succeeded in positioning itself as one of Germany’s top three service AIFMs in the first ten years of its history. The open-ended special property AIFs we manage raised a net amount of EUR 1.8 billion in 2018. This corresponds to a market share of around 38%.”

An analysis of the current net fund assets under management rather than net inflows of new money also clearly illustrates the growth of service AIFMs: In 2013 the administration specialists had a combined total of EUR 4.6 billion in net fund assets, giving them a market share of 11%. Six years later, in December 2018, service AIFM funds already have EUR 27.5 billion, which means that they have increased their net fund assets more than fivefold. At the same time, their market share has climbed to around a third.

These developments must also be considered against the backdrop of the property boom and the industry’s considerable growth. In 2009, net fund assets under management in open-ended property special funds amounted to EUR 28.6 billion in total. Just nine years later, at the end of 2018, this figure had risen to EUR 89.9 billion.

A service AIFM is a fund management company licenced by BaFin that performs all administrative duties for asset managers and sets up property funds. Work is divided between administration and asset management. Property management is performed by the asset manager. By contrast, a management AIFM has its own licence from the regulator and also manages its properties itself.
The above analysis is based on BVI statistics. The figures for the three major service AIFMs (HANSAINVEST, INTREAL and Universal Investment) are assigned to the group of service AIFMs.

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IntReal International Real Estate Kapitalverwaltungsgesellschaft mbH (INTREAL) increased its assets under administration (AuA) by around a third in 2018, despite significant sales activities. After seeing growth of €5.1 billion in the previous year, INTREAL achieved new record growth in 2018 with an increase of €5.8 billion. AuA rose to a total of €24.4 billion (end of 2017: €18.6 billion). INTREAL was managing 138 property funds at the end of 2018, 24 more than in the previous year. The number of properties in the funds surpassed the 1,000 mark for the first time, climbing by 31% to reach 1,126 properties under management. At the end of 2017, the portfolios of the funds under administration comprised 857 properties.

Summing up this performance, Michael Schneider, Managing Director of INTREAL, commented that “in the tenth year of the company’s history, we once again outdid our excellent 2016 and 2017 results. We have thus reinforced our position as a leading third-party real estate AIFM and are very proud to have positioned ourselves as a particularly effective and stable market player after just under ten years.”

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A no-deal Brexit is becoming an increasingly likely scenario. For this reason, interest from British real estate fund providers in cooperating with German or Luxembourgish third-party real estate AIFMs is soaring. Such cooperation will give British fund providers the ability to enjoy EU passporting privileges, to initiate their own funds and to sell fund units throughout the EU even after Brexit. The model is as follows: The real estate asset manager is based in the United Kingdom, and the third-party AIFM is based in Germany, for example. The latter launches the fund in accordance with German law. As the AIFM is licensed in Germany – and thus in the EU – the fund units may be sold throughout the EU via passporting rules.

Michael Schneider, Managing Director of INTREAL, commented: “In the past few months, and especially since the beginning of this year, we have been receiving an increasing volume of enquiries from asset managers in the United Kingdom. The advantages of cooperating with INTREAL are obvious: The fund providers spare themselves the costs of founding and maintaining an AIFMD-licensed branch office in the EU, while they can still initiate their funds and sell fund units EU-wide.”

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The most important deliverable of a third-party AIFM is to provide easy online access in a manner tailored to the needs of a given client who may use it to monitor and manage their investments and to grant authorisations, as well as a functional workflow between the AIFM company and the client (IT access and workflow).

The second-most important aspect for respondents are all the deliverables that an AIFM offers in the areas of fundraising and the resolution of potential conflicts with investors. Michael Schneider, Managing Director at INTREAL, commented: “Clients emphasise in this context that the third-party AIFM should not handle these tasks in its own right. Nonetheless, it is important to respondents that they get support from the AIFM in these aspects. It is precisely what INTREAL has been offering for a considerable period of time.”

These are the main findings of a survey that INTREAL, Germany’s leading third-party AIFM for real estate, conducted in collaboration with Maximilian Kretzschmar, graduate of a master’s degree program in real estate economy at the International Real Estate Business School (IREBS), on the subject of what services and product characteristics are offered by third-party AIFMs that exceed the statutory parameters. Respondents were asked to answer primarily two questions: How should a third-party AIFM position itself, and which product characteristics play a particularly important role when selecting a third-party AIFM?

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