Real-estate fund redemptions in US, Europe, surge on alarm over malls

New York

REAL-ESTATE funds in the US and Europe are struggling to meet a surge in investor requests to get their cash back, a sign of mounting concerns about the viability of retail properties in the e-commerce era.

The latest to come under duress: UBS Group's flagship real estate fund, which has raised about US$25 billion and owns malls across the US.

Investors are waiting to withdraw about US$7 billion from the bank's Trumbull Property Fund after it underperformed for an extended period, according to a person familiar with the matter who asked not to be identified because the details are private.

Similar liquidity issues have popped up in Europe, highlighting the pressure that retail properties have come under as consumers embrace the convenience of online shopping.

As investors increasingly try to get their money back, the funds could be forced to unload mall properties at a time when buyers are in short supply.

In the US, there have been relatively few sales of individual malls, according to Lindsay Dutch, an analyst at Bloomberg Intelligence. "If you're the seller, you have to find someone who believes in the long-term value of those assets and can reinvest in them," she said.

On Monday, Simon Property Group, the biggest US mall company, agreed to buy Taubman Centers for US$3.6 billion. The price of the deal highlighted the scarcity of buyers for malls, Ms Dutch said.

UBS has offered to cut some fees for investors who stay in its Trumbull fund. The Swiss bank's asset-management unit had inflows of about US$18 billion last year and oversees assets of US$900 billion, including US$206 billion in the Americas.

As store closures and bankruptcies pile up for retailers, malls are trying to find ways to draw foot traffic and keep their properties full of rent-paying tenants.

The struggles are driving a reassessment of investments tied to malls.

The Nebraska Investment Council and the Office of Special Education and Rehabilitative Services have filed to redeem about US$153 million from the Trumbull Property Fund, according to a spokesman.

The State Universities Retirement System in Illinois has been trying to get out of the UBS fund since the end of 2017, according to minutes from a December 2019 meeting.

It has gotten back US$294 million so far but expects that it may take a few years to recoup the remaining US$103 million, because "the exit queue has significantly increased", according to the minutes.

The issues surrounding investors trying to withdraw from property funds are not unique to UBS.

Aviva recently halted withdrawals from two Irish real estate funds with significant retail property holdings for as long as six months under mounting redemption pressure.

An Ireland-based property fund run by Zurich Insurance Group has experience a recent increase in net outflows.

In December, M&G's flagship UK property fund was frozen after it struggled to sell assets to meet mounting redemption demands, with potential buyers being scared off by political uncertainty and plunging mall and store values.

"Large investors basically invested in these funds because they were conservative," said Michael Hirschfeld, a retail broker at Jones Lang LaSalle, adding that now the general attitude is: "OK, let's reduce exposure to retail." BLOOMBERG