Michael Morgenroth, chairman of the European Association for Investors in Non-listed Real Estate Vehicles (INREV), issued a call to arms against the incoming Solvency II European regulations that will limit insurance company, and potentially pension fund, investments in real estate at the PERE Forum: Frankfurt yesterday.
Morgenroth, who doubles as management board member of Gothaer Asset Management, which is the asset manager for German insurer Gothaer, made the lobbying plea on the first day of the Forum in Frankfurt, where he warned Solvency II could “really hurt the real estate industry”.
Solvency II is the European Commission’s attempt to reform the regulation of the insurance industry, with part of the new rules requiring insurance companies to increase their capital reserves when investing in `risk assets’ such as real estate. The regulation could also extend to pension funds in the future.
He warned: “Insurance companies and pension funds will be reluctant to invest in real estate next year because of the uncertainty,” further arguing that the regulation was unfair given that government bonds would attract a zero capital charge, yet all real estate in any European location would attract a charge of 25 percent.
“The capital charge for government bonds will be zero no mater what country the bonds are issued in, even in Ireland or Greece. But there will be a 25 percent charge for any investment in real estate no matter it is,” he said.
In addition, BaFin, the German financial supervisory authority, has introduced fresh draft rules that would place further restrictions on real estate investing. Insurers currently have to ´sort´ investments into specific `buckets´ according to the type of asset they invest in, said Morgenroth. The latest draft requires real estate to be placed into the equity ´bucket 14` which allows a maximum leverage attached to the asset of 60 percent. That, he said, would be the end of opportunistic investments in real estate.
“The real estate industry has to lobby on the European level and fight on the national level too,” he said.
He pointed out that German insurance companies had a relatively low exposure to real estate at around five percent so the sector was not such a big focus in terms of their overall allocation. That is why, he said, regulations had to be fought as a real estate industry.
The PERE Forum is a two day event that kicked off yesterday. It is the first time PERE has hosted a forum on mainland Europe.