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Trading with £ 1.7bn UK real estate fund Standard Life Investments and £ 1.1bn UK real estate fund Aberdeen have been suspended after Covid-19 plunged markets into chaos.
Real estate transactions have almost come to a standstill since the escalation of the coronavirus in the UK over the past week, making it nearly impossible to accurately assess real estate portfolios.
Financial Conduct Authority (FCA) rules due to go into effect in September require funds dependent on illiquid assets such as real estate to be suspended when the value of more than 20% of their assets becomes uncertain.
Fund manager Aberdeen Standard Investments said it had suspended the two funds in the interests of investors.
A spokesperson for ASI said: ‘Following the introduction of’ material uncertainty ‘clauses in valuations by UK property fund industry valuers, we have suspended trading in our two UK-owned real estate funds. variable and their feeder funds.
“Markets around the world have seen enormous disruption as Covid-19 spreads and trade in the UK property market is severely affected. Accordingly, the independent appraisers of the funds have informed us that it is currently not possible to provide accurate and reliable appraisals for certain assets, including the properties held in the Funds. We are therefore unable to produce a price for the Funds which we can say with certainty reflects the true value of the assets.
“This action reflects the exceptional circumstances of global markets, including the UK property market as COVID-19 spreads, and the need to protect the interests of clients by suspending transactions when there is significant uncertainty as to how assets must be valued. We will aim to lift the suspension as soon as confidence returns to the market and there is more certainty about asset valuations, taking into account the best interests of clients and investors. “
Investors have suspended purchases of commercial properties such as pubs, hotels, offices, shops and warehouses as Covid-19 threatens to trigger a global recession. The hospitality and retail sectors appear particularly fragile after the public has been urged to avoid the crowds. Real estate investment trusts (REITs) depend on there being a sufficient volume of transactions to prove that their assets match the valuations on their balance sheets.
Paul Richards, Managing Director of the Association of Real Estate Funds (AREF), said: “Covid-19 is causing great economic uncertainty, hitting all of these companies and also reducing the number of investment transactions that provide evidence of real estate appraisals.
“This means that appraisers can no longer assess the value of properties with a high degree of certainty. Under these conditions, real estate funds must suspend for the duration of this extraordinary situation, in order to guarantee the protection of investors, mainly savings investors. long-term retirement. Strict FCA regulations apply, to ensure that all investors are treated fairly. “
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