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UBS AG (UBS) to Close Real Estate Fund as Office Downturn Hit
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UBS Group AG (UBS - Free Report) will liquidate a flagship real estate fund it acquired when it bought Credit Suisse. The move came as the latest indication of the turmoil brought on by investors withdrawing their money from slumping commercial real estate markets.
The fund, which comprises offices for four-fifths of its assets, has redemption requests from investors. However, the bank stated that fulfilling those demands would need selling assets at an ‘inopportune time,’ which would affect current investors. UBS determined that closing the entire fund was preferable.
The fund is highly exposed to a few of the weakest sectors. According to UBS, its largest markets were the United States and Germany and office properties contributed more than 80% of its 1.9 billion Swiss francs ($2.2 billion) in assets.
The assets of the fund saw a 12% decline in market value over the first half of the year. The fund's value fell significantly during 2023.
In April 2024, around 36% of the fund's total units in circulation in 2022 had been redeemed by the end of 2023. The process of raising the necessary funds illustrated ‘the limited depth of real estate markets.’ It will take some time for the remaining investors to receive their money back. Revenues from the sale of the portfolio will be distributed over several years due to the slow speed of transactions.
Following a spike in office vacancy rates after the pandemic, commercial real estate markets — especially those in the United States — have seen a dramatic decline in prices since 2021.
Work-from-home trends have reduced demand for office space, while rising interest rates have thrown off the calculations that made real estate a safe choice during the economic meltdown. The shift spurred investors across Europe to withdraw liquidity from open-ended funds.
This month, Deutsche Bank (DB - Free Report) announced its plans to offload almost $1 billion of its U.S. commercial property loans to trim down commercial and real estate (CRE) loan exposure, per a Bloomberg report. The move comes as rising interest rates have put pressure on profits in the bank’s real estate portfolio.
DB is one of the largest lenders to U.S. commercial real estate developers, especially offices. The company has been witnessing elevated provisions for commercial property in the past few years.
Other banks are also reducing their exposure to CRE loans. In May, the Canadian Imperial Bank of Commerce (CM - Free Report) signed agreements with multiple buyers to divest U.S.-based office loans worth $316 million at a discount. CM’s provisions also surged in its second quarter due to its exposure to CRE.
In the past six months, shares of UBS have increased 10% on the NYSE compared with the industry’s growth of 16.2%.
Image: Shutterstock
UBS AG (UBS) to Close Real Estate Fund as Office Downturn Hit
UBS Group AG (UBS - Free Report) will liquidate a flagship real estate fund it acquired when it bought Credit Suisse. The move came as the latest indication of the turmoil brought on by investors withdrawing their money from slumping commercial real estate markets.
The fund, which comprises offices for four-fifths of its assets, has redemption requests from investors. However, the bank stated that fulfilling those demands would need selling assets at an ‘inopportune time,’ which would affect current investors. UBS determined that closing the entire fund was preferable.
The fund is highly exposed to a few of the weakest sectors. According to UBS, its largest markets were the United States and Germany and office properties contributed more than 80% of its 1.9 billion Swiss francs ($2.2 billion) in assets.
The assets of the fund saw a 12% decline in market value over the first half of the year. The fund's value fell significantly during 2023.
In April 2024, around 36% of the fund's total units in circulation in 2022 had been redeemed by the end of 2023. The process of raising the necessary funds illustrated ‘the limited depth of real estate markets.’ It will take some time for the remaining investors to receive their money back. Revenues from the sale of the portfolio will be distributed over several years due to the slow speed of transactions.
Following a spike in office vacancy rates after the pandemic, commercial real estate markets — especially those in the United States — have seen a dramatic decline in prices since 2021.
Work-from-home trends have reduced demand for office space, while rising interest rates have thrown off the calculations that made real estate a safe choice during the economic meltdown. The shift spurred investors across Europe to withdraw liquidity from open-ended funds.
This month, Deutsche Bank (DB - Free Report) announced its plans to offload almost $1 billion of its U.S. commercial property loans to trim down commercial and real estate (CRE) loan exposure, per a Bloomberg report. The move comes as rising interest rates have put pressure on profits in the bank’s real estate portfolio.
DB is one of the largest lenders to U.S. commercial real estate developers, especially offices. The company has been witnessing elevated provisions for commercial property in the past few years.
Other banks are also reducing their exposure to CRE loans. In May, the Canadian Imperial Bank of Commerce (CM - Free Report) signed agreements with multiple buyers to divest U.S.-based office loans worth $316 million at a discount. CM’s provisions also surged in its second quarter due to its exposure to CRE.
In the past six months, shares of UBS have increased 10% on the NYSE compared with the industry’s growth of 16.2%.
At present, UBS Group carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.