Key Takeaways
- • UBS is liquidating the Credit Suisse Real Estate Fund International, a roughly $2 billion (1.88 billion Swiss francs) real estate fund it inherited when it acquired Credit Suisse in 2023, according to Reuters.
- • The fund held 83% of its investments in offices as of June 30, with the largest country exposures in the United States (22%), Germany (16%) and Canada (14%).
- • UBS said meeting outstanding redemptions would require selling the portfolio's most liquid assets at an inopportune time, harming remaining investors and likely prompting further redemptions.
- • The fund's annualised net return over the last three years was -10.6% through end-June, and 36% of units in circulation in 2022 had been redeemed by the end of 2023.
- • The move adds to a string of commercial real estate stress signals, including Blackstone Mortgage Trust's July dividend cut and Starwood REIT's May temporary limit on share redemptions.
Summary
UBS said on Thursday, August 15, 2024, that it will liquidate a $2 billion real estate fund it acquired when it bought Credit Suisse, citing persistent weakness in commercial property markets. According to Reuters, the Credit Suisse Real Estate Fund International had total net assets of 1.88 billion Swiss francs ($2.17 billion) at the end of June. The fund had faced investor redemption requests, but UBS concluded that meeting them would require selling assets at an "inopportune time," which would hurt existing investors.
The portfolio is heavily concentrated in office properties. A fund document dated June 30 showed 83% of investments in offices, with the United States at 22%, Germany at 16% and Canada at 14% of exposure. UBS said 36% of the fund's units in circulation in 2022 had been redeemed by the end of 2023. Its fund management unit, UBS Fund Management (Switzerland), said the process of selling assets over the past 18 months to meet redemptions "has demonstrated the limited depth of the real estate markets."
Performance has deteriorated. The fund's value fell significantly during 2023, and its annualised net returns for the last three years stood at -10.6% through end-June. Reuters reports that the decision reflects broader investor retreat from troubled commercial property, where valuations have fallen sharply since 2021 as office vacancy rates rose after the pandemic. Analysts expect further pressure on lenders and owners.
The liquidation follows other signals of strain in the sector. Blackstone Mortgage Trust (BXMT) cut its dividend in July, and Starwood Real Estate Income Trust (SREIT) temporarily limited share redemptions in May to avoid forced sales. UBS acquired Credit Suisse in 2023 after the rival collapsed amid a series of financial setbacks.
The portfolio is heavily concentrated in office properties. A fund document dated June 30 showed 83% of investments in offices, with the United States at 22%, Germany at 16% and Canada at 14% of exposure. UBS said 36% of the fund's units in circulation in 2022 had been redeemed by the end of 2023. Its fund management unit, UBS Fund Management (Switzerland), said the process of selling assets over the past 18 months to meet redemptions "has demonstrated the limited depth of the real estate markets."
Performance has deteriorated. The fund's value fell significantly during 2023, and its annualised net returns for the last three years stood at -10.6% through end-June. Reuters reports that the decision reflects broader investor retreat from troubled commercial property, where valuations have fallen sharply since 2021 as office vacancy rates rose after the pandemic. Analysts expect further pressure on lenders and owners.
The liquidation follows other signals of strain in the sector. Blackstone Mortgage Trust (BXMT) cut its dividend in July, and Starwood Real Estate Income Trust (SREIT) temporarily limited share redemptions in May to avoid forced sales. UBS acquired Credit Suisse in 2023 after the rival collapsed amid a series of financial setbacks.
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