After trying and failing to sell office space from Paris to Frankfurt, Amundi SA is finally close to a big sale that will help it raise money for shareholders looking to exit real estate funds.
Blackstone Inc. has agreed to buy 250 million to 300 million euros of business parks from Europe’s largest fund manager, Bloomberg reported. People familiar with the deal say the U.S. investment giant believes the business parks will fare better (and profitably) if they are converted into logistics facilities.
The deal, as Bloomberg points out, highlights the dilemma facing European real estate funds, which oversee assets worth 166 billion euros. In a world where demand for office buildings is falling, one of the few ways to deal with investor flight is to sell other, more attractive assets, such as houses, warehouses or real estate, that can be repurposed.
Endless streams
This leaves fund managers – and their remaining clients – with an increasing concentration in tried and tested market segments. As outflows continue, some of them may soon have no choice but to sell, triggering a rally and delaying any emerging market recovery.
For some real estate funds and developers, “the pressure to sell is absurdly high,” said Henning Koch, chief executive of Commerz Real AG, a German fund manager that oversees about 34 billion euros invested in real estate and renewable energy. “The funds are struggling with massive outflows.”
European open-ended real estate funds have seen six straight quarters of outflows, according to Morningstar Inc. The data showed investors have pulled out more than 12 billion euros since the European Central Bank began raising interest rates in July 2022, leaving liquid assets at their lowest level in five years.
Liquidity pressures
For mutual funds that invest in stocks or bonds, these outflows are painful but do not create liquidity problems. Real estate funds, by contrast, buy large assets that cannot be traded quickly and whose current value can be difficult to determine until they are resold, sometimes at significant discounts to what the fund had returned.
In Germany, many mutual funds have difficulty disposing of assets because of rules that prohibit them from selling them at a price significantly below their book value.