UBS to Wind Down Legacy Real Estate Fund on Office Market Woes

(Bloomberg) -- UBS Group AG will liquidate a flagship real estate fund in the latest sign of the turmoil caused by investors pulling money out of slumping commercial real estate markets. 

The fund, which was inherited in the takeover of Credit Suisse, was highly exposed to some of the weakest sectors. It had over 80% of its 1.9 billion Swiss francs ($2.2 billion) in assets in office properties, and the US and Germany were its biggest markets, according to UBS. 

The Swiss bank decided to shut the fund because outstanding redemption requests meant that it would have to sell the most liquid assets below their long-term intrinsic values, UBS said in a statement on Thursday. 

Such concerns have swept through real estate funds. As investors demand money back, fund managers are forced to sell their best assets at cut-rate prices and weakening their portfolios in the process. 

In the first six months, the market value of the fund’s assets decreased 12%. CS Real Estate Fund International had already lost 31% of its value in 2023 compared to the prior year. 

Work-from-home trends have sapped demand for office space, while higher interest rates have upended the calculations that made real estate a safe bet during the cheap-money era. The change has prompted Blackstone Inc.’s giant real estate trust to seek to limit redemptions, which totaled $806 million in June.

The CS fund paid out 2022 redemptions in April of this year and the process to raise that cash demonstrated “the limited depth of real estate markets,” UBS said, justifying the decision to liquidate. 

For remaining investors, it will take a while to get their money back, or what’s left of it. Given the sluggish pace of transactions, payments of proceeds from selling off the portfolio will be made over several years, the bank said, without specifying a time frame. 

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