ProReal Deutschland 7 and 8 and ProReal Europa 9 and 10 affected
January 15, 2024, is the date investors in “ProReal Europa 9 GmbH” and “ProReal Europa 10 GmbH” were expecting to receive interest payments for the fourth quarter of 2023. Instead, they were met with an announcement from the Hamburg-based issuer One Group that it was suspending interest payments until further notice. The German business newspaper Handelsblatt is reporting that interest payments on the registered debentures “ProReal Deutschland 7” and “ProReal Deutschland 8 – Exklusives Folgeangebot” have also been suspended for the fourth quarter of 2023. In addition, One Group is no longer accepting subscriptions for five further investments in the ProReal line.
One Group is itself part of the Austrian real estate group Soravia. Investors were able to participate in real estate projects via the group’s investment products. Citing the challenging situation in the real estate market, One Group has now decided to suspend interest payments for four registered debentures: “ProReal Deutschland 7”, “ProReal Deutschland 8 – Exklusives Folgeangebot”, “ProReal Europa 9”, and “ProReal Europa 10”. Rising interest rates and high inflation have led to an increase in financing costs and stagnating demand in the face of falling real estate prices. This has forced contractual partners to subject their construction projects to a thorough risk analysis, which should be completed in the first quarter of 2024. Until then, interest payments will remain suspended, meaning that the issuer will not be able to make the interest payments owed to investors.
Risky capital investment
It remains to be seen whether interest payments will resume once the analysis has been completed, or whether investors ought to anticipate cuts. However, one clear conclusion that emerges from this situation is that subordinated registered debentures are an extremely risky investment, notes MTR Legal Rechtsanwälte, a commercial law firm whose areas of expertise include capital markets law.
Qualified subordination has been agreed for the four affected investments. The consequences of such a move become readily apparent in times of economic crisis. This is because the agreed subordination means that investors’ claims, e.g., for interest payments, cannot be enforced if these payments could lead to the issuer going bankrupt or even just raise this prospect. If bankruptcy does become a reality, investors are then at risk of being left completely empty-handed due to the subordination, as this means the claims of the other creditors will be satisfied first.
Is agreement on subordination effective?
It is therefore worth looking into whether the subordination was validly agreed in the first place. Oftentimes, this is not the case, e.g., because the relevant clauses are not formulated in a sufficiently transparent manner for investors. If the subordination was not validly agreed, interest payments cannot simply be suspended.
Repayment of ProReal Deutschland 7
Those who have invested in the registered debenture ProReal Deutschland 7 find themselves in a very particular situation. Following the extension of its term by one year, the debenture reached maturity at the end of 2023, which means that the investors can expect to be repaid in the first half of 2024.
Investors should keep an eye out for any further delays in payment. They can also have someone assess whether they are entitled to claim damages for not being properly informed about the risks associated with their investment, especially the risk of their investment being completely written off.
MTR Legal Rechtsanwälte advises on capital markets law.
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