£20bn locked in property post exit

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