- UBS is trying to save its real-estate fund from huge redemptions.
- UBS ’troubles indicate that something greater is amiss with the U.S. housing market.
- Store closures and loss of employment could trigger the next crisis.
The U.S. housing market is enjoying terrific price appreciation thanks to a lack of homes available for sale , but that isn’t preventing investors to take money off the table from commercial real estate funds. Last week, it emerged that UBS ‘$ billion flagship real-estate fund is on the verge of witnessing $ 7 billion in withdrawals .
The UBS Trumbull Property Fund has received redemption requests that could see more than a third of the vehicle’s value being diminished. In a last-ditch attempt to arrest the outflow at the underperforming fund, UBS is reportedly looking to let go of management fees and reduce costs for investors.
At the same time, UBS is returning putting the fund’s office and retail assets for sale, which currently accounts for (percent and) percent of the overall value, respectively. Instead, UBS is now looking to increase the fund’s exposure to apartments from the current 34 percent. But this change in gear by UBS at its landmark real-estate fund could end up having a negative impact on the U.S. housing market.
UBS ’landmark fund could trigger a U.S. housing market crisis
The reason why investors have decided to pull out of the fund is simple – underperformance. The returns from the fund have averaged lower than the benchmark index over a period of one, three, and five years, as reported by CNBC. The problem is that the redemption requests could force UBS to offload properties at a cheaper rate to meet investors ’obligations, and that’s where the problem for the U.S. housing market lies.
For instance, selling commercial real estate such as malls and offices on the cheap could have a domino effect on the price of residential real estate in that area. This could knock the wind out of the U.S. housing market that’s riding high on price appreciation on the back of tight inventories thanks to negative perception.
But this is not the only reason why the weakness in real estate prices could wreck the U.S. housing market rally. UBS ’troubles point toward a far bigger problem that’s affecting the real estate market in the U.S. and has the potential to negatively impact the housing market as well.
The bigger problem
The perception of weak commercial real estate prices is just one simple way how the U.S housing market could be impacted by the redemptions at UBS. But the bigger problem is that the redemption requests make it clear that the value of commercial real estate such as malls is not in the pink of health.