£20bn locked in prop­erty post exit

Weekend Argus (Saturday Edition) - - LIFE -

LON­DON: Com­mer­cial real es­tate hit the head­lines this week, a vic­tim of the re­cent Brexit vote which has left over $20 bil­lion (R378bn) trapped in funds that not long ago promised in­vestors a slice of Lon­don’s red-hot prop­erty mar­ket

Money placed in real es­tate ve­hi­cles man­aged by big as­set man­age­ment firms such as Stan­dard Life and Hen­der­son may have yielded strong re­turns dur­ing the boom years, but with the pound in free fall and Bri­tain headed to­wards eco­nomic re­ces­sion, the flip side of such in­vest­ments is fast be­com­ing ev­i­dent.

The ins and outs of com­mer­cial prop­erty in­vest­ments re­main a mys­tery to many. But put very sim­ply, this week’s seize-up – the big­gest since the 2008 cri­sis – has un­folded as pun­ters lined up to de­mand their cash back from the as­set man­agers. The rea­son be­hind the out­flow wave? Fears that eco­nomic un­cer­tainty af­ter Bri­tons’ de­ci­sion to leave the EU will hit de­mand from com­pa­nies to rent and buy com­mer­cial prop­erty.

In nor­mal times, most funds al­low in­vestors to pull out their money daily. But when re­demp­tion re­quests bal­loon, as they did this week, funds may run out of cash and must then sell the build­ings they own. That process can take months.

Many prop­erty in­vestors will also re­mem­ber the 2008 cri­sis when funds hit by huge re­demp­tions were forced into a fire sale of com­mer­cial build­ings, even­tu­ally bring­ing cen­tral Lon­don prop­erty prices down by as much as 40 per­cent.

Fund sus­pen­sions aim to avert this sce­nario by giv­ing the as­set man­agers more time to sell prop­erty. – Reuters

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