Distressed funds in the real estate sector
The real estate sector is currently facing tremendous challenges, and real estate funds and their managers are increasingly finding themselves in distress. This is illustrated by headlines such as “Financial supervisory authority sends asset management company into insolvency” or “Another billion-euro real estate fund comes under pressure.” In times of economic uncertainty, the stakeholders concerned share a common goal: protecting their assets for the long term. In our analyses, we never lose sight of stakeholders’ conflicting interests.
Rising interest rates, stricter regulation, supply bottlenecks and a shortage of skilled labour are just some of the factors that have plunged the real estate market into a fundamental crisis. The consequences include stagnation in the investment market, a slump in the number of new builds and the devaluation of properties. The uncertainty among stakeholders is considerable. There is a real risk of a domino effect, resulting in substantial asset losses.
As a full-service law firm, Luther is your ideal partner to rise to these challenges. Our experts support the stakeholders concerned in protecting their assets – preventively and in times of crisis. We are familiar with the problems and challenges that come with trying to balance conflicting interests during turbulent times. You can benefit from the lessons learnt by our experienced specialists from the 2008 financial market crisis.
Professional excellence and strong penetration of the market are our core competencies. Our Health Check is the tool we use. We take a structured approach to both preventive advice and crisis management:
Areas of advice
In times of crisis, the various players pay particular attention to the resilience of asset managers and their products. Both are indispensable when it comes to trust, reputation and competitiveness.
Our experts assist you in protecting the assets and financial products you manage and avoiding insolvency risks.
We analyse the fund structures and assess your legal position in terms of impending stress scenarios, including liquidation, suspension and insolvency scenarios and the associated liability risks. We develop optimisation strategies to stabilise your liquidity, reposition your products and defend you against liability.
Our team analyses your service provider structures and identifies which rights you need to strengthen for you to manage the fund and steer it through the crisis.
We also develop a strategy for communicating with investors and supervisory authorities – which is essential in times of crisis – and train your employees and service providers on potential sources of risk in fund management.
For institutional investors, the protection of investments is paramount.
Our experts analyse the legal situation regarding your investment for you and support you in evaluating and limiting the risk of loss.
We explain to you in detail the sometimes very complex legal structure of the fund and show you which specific rights you are entitled to as an investor (e.g. rights to information, participation rights and rights to alter a legal relationship) and how you can use and exercise these rights effectively to minimise risk. In terms of your legal position, we analyse your optimisation options to stabilise your fund investment (e.g. with regard to leverage, service provider structures) and support you in communicating with fund managers, supervisory authorities and other third parties (e.g. your umbrella fund investors).
We examine whether any claims for damages or other claims exist against managers, current or former board members, co-shareholders or third parties and ensure efficient and effective enforcement of claims both before state courts and courts of arbitration. It goes without saying that we also advise on enforcement measures and on the negotiation of restructuring measures with the creditors of the investment vehicles.
A distressed closed- or open-end real estate fund also affects the service providers who manage the fund properties on the basis of a corresponding contractual agreement and make sure they retain their value.
We analyse your contractual situation in relation to the fund manager and, against the backdrop of a potential loss in value of the property or insolvency of the fund or asset management company, identify your options to minimise your liability and protect your financial interests. We analyse your links with the fund product under corporate law and advise you on liability and insolvency law aspects.
We also support you in negotiations with the asset manager and work with you to develop a strategy for communicating with investors.
In the event of a distressed real estate fund, selling shares in the fund is also one of the main areas of focus, especially for funds in which “small investors” have invested. Law firms specialising in consumer protection are already stepping up client acquisition efforts to enforce as many claims for compensation as possible.
Our experts are familiar with all investment law matters. We analyse any liability risks for you as an investment advisor or investment broker when selling fund investments and help you to minimise future liability risks, for example by training your sales staff.
Our experienced litigators also support you in the defence against claims for damages or other rights of recourse in both individual and collective proceedings. And it goes without saying that we use state-of-the-art legal tech applications and AI in collaboration with our Luther Solutions team.
The challenges in the real estate market are also being felt by the financing banks. Our experts review the financing structure in place and advise the banks on any necessary adjustments, follow-up financing and financial restructuring.
If necessary, we assert rights arising from existing financing agreements and ensure effective and efficient enforcement of claims. We also, of course, advise on the realisation of collateral or enforcement measures, utilising our specialist expertise in creditor-driven M&A processes involving the solvent liquidation of investment vehicles. Luther ensures that your assets are secure. And we always hit the mark.
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