Will Brexit be final straw for UK commercial property?

Will Brexit be final straw for UK commercial property ?  Just a few blogs ago we mentioned a crisis in UK property funds in a recent blog as the £2.9bn Standard Life UK Real Estate Fund has suspended redemption’s for “at least 28 days”. In other words, if you have money in the fund, you can’t get your money out.

Standard Life Property Fund freeze on unit withdrawals was the first in the sector, but now a further seven open ended property funds have already imposed exit charges or a freeze.

Open ended funds, such as unit trusts, suffer when a spate of investors want to withdraw funds. They have an obligation to provide unit holders who wish to redeem their units with the cash. The additional problem with most property funds is that not only are you selling into a falling market but as property funds are illiquid then properties will have to be sold at fire sale prices.

So clients who wish to liquidate their property funds are likely to lose money. The question they should ask themselves is this, why did their adviser sell them an open ended investment with illiquid assets ?

Why, why, why, —- Delilah!

Unlike open ended funds, investment trust managers have NO requirement to meet redemptions, their shareholders simply need to find a willing buyer in the market place.

OK the property investment trust will be marked down in price and so sellers who wish to sell will get less for their investment (as the investment trust will move to a discount) but the managers will not be forced to sell assets.

Yet the perceived opinion is that investment trusts carry “additional risks”.

Quite clearly if you are a unit holder in a UK property Unit Trust and you and a sufficient number of unit holders wish to sell, then the managers may have to resort to selling the properties at whatever price they can get. This not only results in the unit holders who are selling getting less money but this impacts on investors who stay with the investment in the property fund. Surely this is very unfair.

If you hold investment trusts that invest in property and wish to sell your shares, you may get less than true value as the investment trust discount will widen, but your wish to sell does not impact directly on other investors who wish to remain invested.

Which sounds fairer to you?

So is the property sector one to invest in now that there are some attractive discounts available in property investment trusts?

Although our research has thrown up a number of property investments at attractive discounts and high yields, we would not rush into this market just yet, except in exceptional circumstances …