Green power for real estate funds

The building sector in Germany emitted around 120 million tons of greenhouse gases in 2020. By 2030, the German government wants to reduce these emissions to 67 million tons. There are two main factors that can be leveraged to achieve this: heat generation and electricity consumption. Without an energy supply that essentially comes from renewable energies, we will not be able to reduce CO2 emissions in the real estate sector to the extent necessary. That's why we firmly believe that real estate and renewable energies must be thought of together - and also go well together as asset classes.

In the case of logistics properties or shopping malls, for example, huge roof areas, some of them unused, are available for the installation of photovoltaic systems that could contribute a large share to the power supply of these properties - or even make them self-sufficient. Of course, this is not possible for all properties; think of a high-rise office building with high power consumption and a small footprint. Here, instead, it would be conceivable for the owner - a fund, for example - to invest in renewable energy systems alongside the building, thus generating the power requirements of its asset from renewables.

This is exactly what we would like to do with our flagship hausInvest. From our sister fund klimaVest, which specializes in renewables, but also from our institutional business, we have the necessary expertise with investments and asset management of renewables such as photovoltaic and wind energy plants. This does not mean that we want to dilute the clear orientation of our open-ended real estate fund into a kind of mixed fund. Instead, it is about a limited admixture of renewables that ensures a climate-friendly power supply for the real estate portfolio and substantially reduces the carbon footprint.

Unfortunately, this is not currently a regulatory requirement in Germany. Under the Fondsstandortgesetz (Fund Location Act), it has been possible since August 2021 to have an open-ended infrastructure special fund, i.e. an open-ended mutual fund for private investors modeled on an open-ended real estate fund such as hausInvest, only for infrastructure instead of real estate. Thus, there is now one special fund for real estate and one for infrastructure, but no vehicle in which both would fit. So far, only special real estate funds for institutional investors are allowed to invest in both asset classes in Germany.

Other countries have gone further in this respect. We therefore advocate that open-ended mutual property funds in Germany should also be allowed to invest in infrastructure and renewable energy assets to a limited extent. We believe that this proposal has been well received.

Expanding the investment focus for open-ended real estate funds would have many advantages for all parties involved: The fund could offer its tenants a reliable supply of green electricity at favorable conditions. Supplying the real estate portfolio with its own green power would substantially improve the fund's carbon footprint. And in addition, investors could benefit from a broadening of income sources and an improved risk-return profile of their fund investment.

Article by Mario Schüttauf. Mario Schüttauf is fund manager of hausInvest at Commerz Real