UBS to liquidate $2 billion real estate fund as office downturn bites

ZURICH (Reuters) -UBS is to liquidate a $2 billion real estate fund it acquired when it bought Credit Suisse, the Swiss bank said on Thursday, in the latest sign of investors selling out of troubled commercial property markets.

The fund, which holds four-fifths of its assets in offices, had faced investor redemption requests but the Swiss bank said meeting those would require selling assets at an “inopportune time”, impacting existing investors. UBS concluded it was better to wind down the entire fund.

Commercial real estate markets, particularly in the United States, have suffered a sharp fall in valuations since 2021 after office vacancy rates jumped in the wake of the pandemic. Analysts are predicting more pain for lenders and owners ahead.

Commercial real estate finance company Blackstone Mortgage (NYSE:) Trust in July slashed its dividend, while the Starwood Real Estate Income Trust (SREIT) in May temporarily limited share redemptions to avoid forced sales of its holdings.

The Credit Suisse Real Estate Fund International’s total net assets were worth 1.88 billion Swiss francs ($2.17 billion) as of the end of June, UBS said. The fund’s value fell significantly during 2023, the bank said earlier this year.

According to a fund document dated June 30, 83% of the fund’s investments were in offices. The largest country exposures were the United States, at 22%, followed by Germany at 16% and Canada at 14%.

UBS acquired Credit Suisse in 2023 after its long-time rival collapsed amid a string of financial setbacks.

In a statement, UBS said 36% of the fund’s total units in circulation in 2022 had been redeemed by the end of 2023.

“The process to sell assets over the past 18 months to meet … redemptions has demonstrated the limited depth of the real estate markets,” UBS Fund Management (Switzerland) said.

UBS said to meet the outstanding 2023 redemptions would require the sale of the portfolio’s most liquid assets, but doing so would negatively impact remaining investors, decrease the attractiveness of the remaining portfolio and thus be likely to drive further redemptions.

The value of assets in the fund has been falling, and the portfolio’s annualised net returns for the last three years stood at -10.6%, performance data to end-June showed.

($1 = 0.8654 Swiss francs)