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Real estate investors circle as property funds offload offices and warehouses

Real estate investors are preparing for discount deals as property funds are pressed to sell offices and warehouses after coming under increasing pressure following the government’s “mini” Budget last month.

Property funds have faced a wave of withdrawals and will have to sell assets to meet redemption requests. Large asset managers and cash-rich private investors are circling, preparing to buy up assets pushed on to the market as a result.

“For the right asset we might step in in the next month,” said Tom Betts, director of structured finance at Topland Group, the investment company set up by property entrepreneurs Sol and Eddie Zakay, which has more than £1bn to spend.

“The pension funds have already started making inquiries to companies they know can perform quickly that don’t need to go and get debt, that they trust you can deliver,” said Betts.

A trustee at Airbus’s UK pension scheme said the fund would be looking to sell most of its property portfolio in the near future — though they insisted the scheme would not dispose of its illiquid holdings at a discount.

The head of real estate at a global investment manager said he was already seeing opportunity from the property fund squeeze and is “looking to buy”. Last week his company bid on a warehouse being sold by a property fund at a substantial discount to its valuation earlier in the year.

Expectations of a downturn across commercial property markets have been building over the year, with rising interest rates and inflation squeezing investors. Goldman Sachs predicts that prices could fall 20 per cent between June 2022 and the end of 2024; other analysts are more bearish.

But according to multiple market participants, there is a gap between buyers and sellers on what constitutes fair value.

“The market is semi-frozen. Investors’ costs are going up and they have to push on price. Sellers can either show you the door or show you their blood,” said the head of real estate at a large private investment group.

Many landlords are choosing to wait until interest rates settle before testing the market. But property funds may soon have little choice but to sell assets in order to meet redemption requests, which have stepped up in recent weeks.

The increase in gilt yields since the “mini” Budget has forced pension funds running liability-driven investment strategies to sell off assets, including property fund holdings, in order to meet collateral calls.

Just under £190mn has been pulled from a sample of property funds covered by fund trading provider Calastone since the fiscal statement, with the pace of withdrawals accelerating in the past week.

One UK-based private real estate investor with a multibillion-pound portfolio described property fund managers coming to him with a menu of buildings to buy.

“What the funds do with people they know and trust is give you the list of all their assets and see if you want them,” he said.

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