Closed-end property funds
Closed-end property funds are a category of closed-end funds (see glossary) and are asset management companies whereby investors, through units, participate in a property investment for which the investment amount, conditions and approximate term are known in advance. Furthermore, the number of investors is limited to the capital to be invested. Once capital commitments in the amount of the necessary fund volume have been received, the fund is closed and no new investors are added.1
The term of closed-end property funds is usually 10 to 20 years. Closed-end funds are significantly less liquid than open-ended property funds. The issuer is under no obligation to redeem units. Rather, investors who wish to exit early must attempt to sell their units on a relatively small secondary market. There is no organised trading in certificates.2
Investors in closed-end property funds are frequently wealthy private individuals as the minimum investment is often more than EUR 5,000. Owing to the long term, investors have to be patient and have the necessary liquid funds as a sale on the secondary market often entails a discount on the issue price and investors will have to wait until a buyer for their units can be found.3
During the term of the closed-end property fund, investors usually participate in the annual distributions generated from the rent surpluses of properties.
While in the past funds predominantly sought properties with a stable, long-term cash flow and relatively minor prospects for changes in value, now they frequently also seek investments with the potential for appreciation.
As a result of the new regulations for closed-end funds brought in by the German Investment Code, their investment range has become more security-oriented (keyword: risk diversification) and their disclosure requirements have become much more extensive (see glossary: Closed-end funds).