Core real estate funds delay investors from cashing out

Real estate market uncertainty has impacted big funds

National /
Nov.November 03, 2020 12:55 PM
Pension fund investors are seeking to take cash out of real estate funds as property values fall, like at Water Tower Place in Chicago (Photo via iStock; Wikipedia Commons)

Pension fund investors are seeking to take cash out of real estate funds as property values fall, like at Water Tower Place in Chicago (Photo via iStock; Wikipedia Commons)

Pension fund investors are seeking to take cash out of real estate funds as property values fall, putting managers of those funds in a difficult position.

More than 15 of the 25 open-ended “core” funds tracked by the National Council of Real Estate Investment Fiduciaries have investors seeking to collect on tens of billions of dollars worth of investments, the Wall Street Journal reported, citing industry insiders.

Those 25 funds had a total of $267.1 billion gross real-estate assets at the end of September.

Those conservative real estate funds have attracted billions of dollars from pension funds and other institutional investors, but since real estate values have plummeted, investors are seeking to cash out, according to the Journal. As a result, funds must either sell those properties or restrict how much money investors can take out.

In one case, the San Diego Employees Retirement System attempted to cash out about $85 million from AEW Core Property Trust in the first quarter. But a pension fund consultant said only about 16 percent has been paid off, and it will likely take several quarters to secure the full amount, the Journal reported, citing a report from the Townsend Group.

An AEW spokesperson told the Journal that the fund suspended all payouts in late March due to the pandemic, but it resumed fulfilling a portion of requests in the second quarter.

Chicago’s Metropolitan Water Reclamation District Retirement Fund is also seeking to withdraw $32 million from the UBS Trumbull Property Fund, according to an August report by Marquette Associates, a consultant to the pension. UBS Trumbull has been selling off properties at steep discounts, the Journal reported. The fund sold half of its stake at the Water Tower Place mall in Chicago to its partner Brookfield Asset Management.

Redeeming public pension funds could be a nightmare given that these investors held $4.93 trillion less than the cost of promised future obligations.

[WSJ] — Keith Larsen


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