Property investors brace for cut-price deals as property funds are pressured to sell offices and warehouses after coming under increasing pressure following the UK government’s ‘mini’ budget last month.
Real estate funds have faced a wave of withdrawals and will have to sell assets to meet redemption requests. Large asset managers and cash-rich private investors are circling, preparing to buy back assets pushed into the market as a result.
“For the right asset, we could step in next month,” said Tom Betts, director of structured finance at Topland Group, the investment firm created by real estate entrepreneurs Sol and Eddie Zakay, which has more than $1 billion. pounds to spend.
“Pension funds have already started asking for information from companies that they know can operate quickly and don’t need to go into debt, that they trust you can deliver,” said Betts.
A trustee of the UK’s Airbus pension scheme said the fund would seek to sell most of its property portfolio in the near future, although he insisted the scheme would not sell off its illiquid holdings to a Lower price.
The head of real estate at a global investment manager said he already saw an opportunity in the property fund squeeze and was “looking to buy”. Last week, his company made an offer on a warehouse sold by a real estate fund at a substantial discount from its valuation earlier in the year.
Expectations of a slowdown in commercial real estate markets built up over the year as rising interest rates and inflation pressured investors. Goldman Sachs forecasts that prices could fall by 20% between June 2022 and the end of 2024; other analysts are more bearish.
But according to several market participants, there is a gap between buyers and sellers on what constitutes fair value.
“The market is semi-frozen. Investors’ costs are rising and they have to put pressure on prices. Sellers can either show you the door or show you their blood,” said the head of real estate for a major private investment group.
Many homeowners choose to wait for interest rates to stabilize before testing the market. But real estate funds may soon have no choice but to sell assets in order to meet redemption requests, which have multiplied in recent weeks.
Rising gilt yields since the ‘mini’ budget have forced pension funds that pursue liability-driven investment strategies to sell assets, including real estate fund holdings, to meet collateral calls .
Just under £190million has been withdrawn from a sample of property funds covered by fund provider Calastone since the budget statement, with the pace of withdrawals accelerating over the past week.
A UK-based private property investor with a multi-billion pound portfolio has described property fund managers presenting him with a menu of buildings to buy.
“What funds do with people they know and trust is give you a list of all their assets and see if you want them,” he said.