Credit Suisse suspended payouts for its $3.5 billion real estate fund as investors sought to pull out their money and cap losses in the dwindling property market. The valuation of real estate properties has declined in recent months after a series of jumbo interest rate hikes by the Federal Reserve and global macro conditions. According to a fact sheet, the fund’s top holdings include properties across Austin, Vancouver, and Boston.
The bank said it expects the net asset value of the Credit Suisse Real Estate Fund International to decline by 10%, which could slash distributions to investors to 35 francs per share, down from 40 francs per share. Due to such a notable drop, investors holding roughly 13.3% of the fund’s shares have sought to pull out their money.
The embattled Swiss bank is not the only real estate fund manager that halted investor withdrawals recently. Last month, the world’s biggest asset management firm BlackRock stopped withdrawal requests from investors in its $4.2 billion UK property fund, indicating these challenges are present in the broader real estate sector.
Blackrock and other asset managers already halted withdrawals from UK property funds in October 2022. The move came around the UK’s “mini-budget” fiasco, though the firms claimed the halts were unrelated to these events.
The decisions by Credit Suisse, BlackRock, and other property fund managers to suspend withdrawals come as investors rush to cap losses in the dwindling real estate market following a monetary policy tightening by the Fed and other global central banks. The property market is among those most directly affected by elevated interest rates, which emerged last year to tame 4-decade high inflation.
“Global valuations were negatively impacted by rising interest rates for CS REF International in its key markets of the United States, the United Kingdom, and Germany. Despite healthy rental results at attractive conditions, these were insufficient to offset the negative effects of rising interest rates.”, Credit Suisse said in a statement.
The Fed raised interest rates by 25 basis points (bps) at the start of February, and while the hike is notably smaller compared to those in 2022, it reiterates the central bank’s hawkish stance to tame inflation. Annual inflation stood at 6.4% in January, a drop from the 2022 peak but still far from the Fed’s target of 2%.
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