Q&A

Founded in 1999, EPRA's mission is to promote, develop and represent the listed real estate sector in Europe—it is, in essence, the region's counterpart to the National Association of Real Estate Investment Trusts (NAREIT) in the US. EPRA currently has approximately 170 members, including many of Europe's largest real estate companies and investment institutions. Serge Fautré, the chief executive officer of Cofinimmo, serves as the organization's chairman. A native Belgian, he recently talked with PERE about EPRA's goals, the future of European REITs and why the Social Democrats are wrong.

Please discuss EPRA's mission and how it sees its future role as European countries become more interested in REITs
Our official mission is to promote, develop and present the listed real estate sector in Europe.

At the end of the 90s, it was thought that it would be good to create an association [for that purpose]. A number of initiatives were taken. The first was to create an index for institutional investors who decide to hold real estate securities because they need to have a benchmark. The second was to try to improve the transparency of the listed companies.

It was also decided that we should try mimicking the US with a more widespread REIT structure. We already had REIT structures introduced in 1969 in the Netherlands, and in Belgium in 1995, but none of the big countries had one. It was clearly identified as an element of success of the listed sector to have REITS introduced in more European domestic legislation.

EPRA helped national associations to attain the necessary changes to introduce REIT structures. And in 2002, the French introduced their legislation. That was very important because it was the first big country in Europe to have a REIT.

With all due respect to my own country and to the Dutch, for the sector to develop, you need a REIT structure in France, the UK, Germany, Italy and Spain. Those are the big European countries. France was the first step. The next step is going to be hopefully the introduction of REIT structures in the UK and Germany, and then in Spain and Italy.

How have REITs performed historically in the Low Countries and in France?
At the beginning they were not very liquid; they were small, but nevertheless they performed better than non-REIT structures. And we have seen a clear acceleration in the performance of French companies just after the introduction of the REIT structure in France, so there is clear proof that REITs perform better than non-REITs.

Now it looks like the UK and Germany are going to try the same thing. Will they follow a similar pattern, or will it be very different?
The first papers that came out of the UK government actually were REIT structures that did not mimic very well the international standards. So everybody initially was a little disappointed. But what emerged a month ago from the British government is in reality a REIT structure that is 95 percent similar to what you have in France and similar to what you have in the US.

Do you think that's what will happen in Germany as well?
Yes, because otherwise I think the government has a risk that the structure they adopt would be a flop and that is politically also not very acceptable. At the end of the day the markets exert such a pressure that it forces the legislature to follow the international standards. The UK was very much pressured by the market. It basically forced the government to adopt what was the most logical structure.

Some analysts are predicting that most UK listed property companies will become REITs. Do you think this is likely? Do you think this is wise?
Absolutely, most will. Just like in the US, most listed real estate companies have adopted the REIT structure, the same will happen in the UK. We think it is likely, and we think it is indeed wise and recommendable from the market perspective.

In Germany, the Social Democrats are generally opposed to the introduction of REITs, saying they put tenants at a disadvantage. Could REITs negatively affect tenants in Germany?
I have not been exposed personally to those discussions, but I would say to the contrary: professional owners mean better service for the tenants. Introduction of REITS should help professionalization of real estate management. It puts real estate in the hands of industrial operators, and I think that is only to the benefit of tenants. More equity flowing into real estate means higher prices and lower rents, more capital available and more competition.

I disagree [with the Social Democrats]. I think it's perfect. The market mechanism has always been good for customers, and the tenant is nothing else but a customer. More competition, customer happier.

Which will be a smarter bet internationally: private funds or REITs?
I'm a little bit biased obviously with REITS; however, a smart answer would be to say that they represent different products. I think I would probably recommend the private fund structure for more risky investments, whereas the REIT structure fits lower-risk profiles. And I think that REITS are probably the perfect exit for private funds. So I think they are complementary.