Two UK Commercial Real Estate Funds Shut Permanently, Investors Trapped, as Sector-Wide Exodus Intensifies

The sector was already hit hard by Brexit, then by lockdowns, and now by working from home as companies plan to cut floor space.

By Nick Corbishley for WOLF STREET:

Aegon Asset Management has closed its UK Property Income and Property Income feeder funds, after struggling to raise sufficient cash to meet redemption requests, it said on Wednesday. The Aegon Property Income fund had £380 million ($531 million) in assets under management and the feeder fund £150 million, according to Morningstar. The announcement follows a move last month by Aviva to wind up its property fund and two feeder funds due to the prevailing economic uncertainty and liquidity concerns.

Both the Aegon and Aviva funds were suspended in March 2020, alongside most other UK property mutual funds, due to the acute uncertainty over market valuations caused by the virus crisis as well as liquidity issues. Many of these funds are open-end, meaning they offer daily withdrawals to their (predominantly retail) investors, even though the funds’ core investment — offices, industrial property and retail parks — is extremely illiquid, often taking months to offload.

In times of financial stress and uncertainty, it’s not unusual for real estate to be plagued by acute liquidity issues. In June 2016, in the aftermath of the Brexit vote, six commercial real estate (CRE) funds suspended redemptions. But never before have so many real estate funds shut the doors on so many real estate investors. Since then most of the funds have reopened, although conditions remain tough. But neither Aegon or Aviva were among them. Their doors are staying shut.

“It has proved increasingly challenging to raise sufficient liquidity whilst also ensuring that continuing investors have a representative and well-balanced portfolio,” Aegon AM said in a statement. “In order to ensure all investors are treated fairly, Aegon AM has decided to take steps to close the funds and return the proceeds to investors as quickly as possible, in a fair and orderly manner.”

Trapped investors will have to wait up to two years to be reunited with their funds. If the recent experience of other gated (and eventually wound down) funds is any indication, by that time the investors may find that the value of their investment has significantly shrunk.

Many of the property funds that did reopen are now suffering an exodus. The industry saw the second-worst month of outflows in May, according to data from funds network Calastone. UK investors redeemed £445 million of their investments in the funds during last month, the second worst month since Calastone began recording flows in 2015. The worst month was March this year when £589 million was withdrawn, compared with £314 million in February and £128 million in January.

The level of selling activity in May took the markets by surprise. April is normally a bad month for redemptions as investors book capital losses before the end of the tax year, as these can be used to limit capital gains tax liabilities. But normally May is better. But not this time.

“We cautioned that sharply lower outflows in April were likely to prove temporary, but we were surprised by the level of selling activity in May,” said Edward Glynn of Calastone, adding that rising fears about the seemingly more contagious delta variant of Covid may have hurt sentiment in a sector that has already been upended by endless lockdowns, travel restrictions, and work-from-home ordinances.

Brick-and-mortar retail tenants are not paying their rent, partly because a government moratorium on commercial rents means they don’t have to. And that moratorium was recently extended to next March. Many offices are still half empty and will stay that way until the government withdraws its guidelines urging people to work from home if they can.

“Anything that delays the return to offices and the removal of limits on capacity in hospitality, retail and leisure venues is bad for commercial property in the short term,” Glynn said. “Recent survey data suggests the long term may also be gloomier as companies plan to cut floorspace in future. This seems to have spurred further selling of property funds from investors who seem to be looking for reasons to be negative on the asset class.”

The UK’s property fund industry has shed £5.6 billion of funds after 32 consecutive months of net outflows, according to Calastone. The hardest hit fund, M&G Property Portfolio Fund, saw investors pull out £800 million in May after it reopened for business following 17 months of suspended redemptions. The outflows equated to 40% of total assets, according to Morningstar, with the fund shrinking from £2.1 billion to £1.3 billion in the space of just one month.

M&G Property Portfolio invests in commercial properties across the UK including offices, industrial property and retail parks, a sector beleaguered by retailer failures and crushed values. M&G’s property funds have been suffering a customer exodus since Brexit. According to Morningstar, the portfolio had only one month of positive flows since Britain voted to leave the EU in June 2016 before closing its doors in December 2019, four months before the UK went into its first lockdown.

Those doors were reopened just two months ago and investors are piling out of them even faster than before.

The problems suffered by these funds are a feature, not a bug, of an industry whose structure has been under question for over two years. The fundamental issue is the glaring mismatch between the daily liquidity the funds offer investors and the illiquidity of most of the assets they hold. The Financial Conduct Authority has proposed replacing the typical daily redemption notice period with notice of up to six months to prevent funds seizing up as investors stampede for the exit in times of market turmoil. But as of yet no definitive action has been taken.

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  84 comments for “Two UK Commercial Real Estate Funds Shut Permanently, Investors Trapped, as Sector-Wide Exodus Intensifies

  1. Copernicus says:

    We are entering the era of consequences to the responses to Covid.
    Although this story is similar to the two mortgage backed bear stearns funds that collapsed in July 2007, kicking off the GFC)…. The era we are entering is far more complex… it’s going to make the GFC look like a four piece jigsaw puzzle.

    • Mike says:

      I don’t think it’s consequences so much as money shifting elsewhere. If a few commercial reits go bust, so be it. Creative destruction and all that…..

      • Wolf Richter says:

        Mike,

        “If a few commercial reits go bust…”

        I’ll add some clarification here:

        The funds in this article are open-end mutual funds that are shutting down and where investors got trapped. Investors in a mutual fund can only cash out by selling the shares back to the mutual fund, and the fund needs to have enough cash to cover those redemptions. If it doesn’t have enough cash, it runs into the problem described here.

        REITs are not mutual funds. They issue shares that are traded, often publicly on stock exchanges. If an investor wants to cash out of a REIT, they can sell the shares to another investor at whatever market price.

        In the US, three mall-REITS have already filed for bankruptcy since November, but investors could still sell those shares when the REIT filed for bankruptcy, even if it’s just for pennies. Depending on when they bought, they lost much/nearly all of their investment, but they were never trapped in those shares.

        https://wolfstreet.com/2021/06/14/third-publicly-traded-mall-reit-files-for-bankruptcy-in-8-months-washington-prime-group-the-simon-property-spinoff/

        • Michael Gorback says:

          True, but SPG spun off WPG before it cratered. It looks to me like SPG has not just stayed the traditional course. They are dumping their weak cards and getting into innovative renovations and repurposing that in previous discussions here were offered up and pooh-poohed as no feasible but they’ve already completed three projects.

    • Old School says:

      I think you are correct. My intuition told me that shutting down supply but handing out money like there was no pain from what had happened was feel good policy.

      Pay back is going to start about now. Lower growth and more negative real interest rates, possibly higher taxes. Still think western world is bumping up against maximums on debt to GDP numbers. Tough decisions for us all.

      • robert says:

        It’s not feel good policy, it’s fulfilling a contractual obligation – until they can’t.

    • nick kelly says:

      Ya the health UK authorities introduced the C 19 virus to short the property market.

      Why do people insist on using a financial topic to parade their pet hobby horse?

      I nominate this lunatic conspiracy theory for removal or transfer to zoohedge.

    • Old School says:

      There is no money to be made on someone buying a basket of blue chip stocks and holding for 20 years so wall street always has to generate new complex products and charge high fees.

  2. GotCollateral says:

    > The fundamental issue is the glaring mismatch between the daily liquidity the funds offer investors and the illiquidity of most of the assets they hold.

    A continued ailment of the entire global economy…

  3. Mendocino Coast says:

    Very interesting Post: Brings to mind a possible warring sign some may Heed / Ponder to sell off Stocks in general .
    The Aegon and Aviva funds suspended some 15 Months ago has not seemed to deter the market Much yet however . This Leg of History may become something to remember . Just think if the Market had” crashed already ” Big time and then the Fed Created Inflation as it has where would we be then ? . A perhaps created capitalistic society has very weak legs . I have fallen and I can’t get up ?

  4. Educated but Poor Millennial says:

    Sorry for off topic news,
    Here the new extension news on forbearance that I was talking about:
    https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=FHFA-Extends-COVID-19-Multifamily-Forbearance-through-September-30-2021.aspx

  5. MCH says:

    “Tis but a scratch.” “It’s just a flesh wound.”

    “I move for no man”. (and they’re not getting any money back either)

  6. CRV says:

    Advertisements to invest in commercial real estate have been popping up for a few months now. When they are seeking the small money, you know they’re desperate. Classic indicator.

  7. Kenny Logouts says:

    To liquidate this stuff in an orderly fashion, who is buying? Why do they think it’s a good buy?

    A bit like the question, who is selling stocks at ATH, and what are they doing with the cash?

    The plebs always pay.

  8. MarMar says:

    These should always have been closed-end funds.

    • David Hall says:

      In the late 1980’s there was a commercial building construction frenzy in the U.S. By 1989 small banks called savings and loan or thrift banks were going bankrupt after commercial loan defaults. The U.S. federal government formed the Resolution Trust Corporation to take over bankrupt lenders’ assets, manage their properties and gradually auction them off. There were office building vacancies in the outer suburbs of DC for years. Apartment complexes across the U.S. were taken over by the RTC and sold.

      • Shiloh1 says:

        …and sold…to the politically connected for nickels and dimes on the dollar.

        • Greg Hamilton says:

          One of the most accurate comments I have ever read.

        • NBay says:

          Just like Jamie Dimon picking up Bear Stearns for less than the value of their NYC office building. He’s a billionaire now.

          BUT, I do NOT like “politically connected” being used in the usual “government bashing” sense. There are other more important “connections” in the corporate and especially hidden in the PE world, where most of the wealth is. Hidden from our increasing feeble attempt at democracy and it’s oversight of all our lives.
          As Lincoln said, the ever fewer rich are extremely good at “preying on the prejudices of the people”.
          We let you down on that Gettysburg request to us Abe, sorry, but thanks for the warnings, anyway.

  9. Chris Herbert says:

    Mr. Obvious. Reminds me of the property collapses, both commercial and in housing, the US went through in the early 1990s. Maturity mis-matches plus the very nature of debt meant the recovery from this kind of collapse takes years to unwind.

  10. Anthony A. says:

    Is Amazon building new warehouse in the U.K.? Or are they buying up these failed REIT properties and doing conversions? Or maybe that hasn’t started yet?

    • Wolf Richter says:

      It’s not easy to convert office buildings and retail stores into modern fulfillment centers. An empty big-box store might be converted into a fulfillment center. Pickup locations are easier to place, but they’re small.

      • roddy6667 says:

        A fulfillment center is usually on a giant slab that is about 5 feet above ground. Essentially it is two sets of loading docks separated by a warehouse with sorting and packaging operations. Most office and retail doesn’t fit that description. I worked my last ten years in what was a massive J.C. Penney facility in CT. When JCP left, it was quickly taken over by a large supermarket parent company and Amazon. There are many places available that need little expense to change over, so converting from office or retail is seldom financially prudent.

      • stan65 says:

        Wolf, it’s easy to convert anything into anything.

        Offices can easily convert into flats, care home setups, hydrophonic farms, what have you.

        Offices into Amazon fulfilment type centres – yes why not, easy peasy.

        Offices are normally framed buildings which means you got columns at a say 6x8m grid, 3 to 3.5m floor to floor height. Anything in between is soft stuff; dividing walls, drainage, electrical and mechanical services.

        Only thing you need to ensure is good are the vertical supports (columns) and the foundations. Everything else can be tweaked at reasonable costs.

        One thing you cannot countenance is, when someone builds a building on a shifting underlying strata, or does not take appropriate measures in the foundations design, as is what happened in Collins Avenue, Miami, the other day.

        Another thing that you cannot countenance is when someone builds your property using defective materials, also as just happened in Miami the other day.

        When all investigations are done, it will be discovered that the concrete used in Collins Avenue block, was incorrectly specified and to compound it all, was not executed to specification. Additional to this, it will be found that the foundation design wasn’t complete and did not allow for all standard design precautions.

        You cannot design out the stupid and corrupt.

        • Wolf Richter says:

          stan65,

          “Offices into Amazon fulfilment type centres – yes why not, easy peasy.”

          At first I thought you were being sarcastic, but I think you may have been serious.

          Have you ever been inside a modern warehouse? Ever looked at the ceiling height of a modern warehouse? Just go to a Costco and check out the ceiling height where restocking takes place via forklift. Then compare that to the ceiling height in an office building. The question was about an Amazon fulfillment center. And we’re talking about office towers in London.

          Even turning offices in to apartments is a major undertaking. You have to gut the building. You have to install plumbing and electrical to every apartment in to the right spots, you have to build all new walls, you have to bring it up to residential code which is very different from commercial, and on and on. It has been done, I have seen them do office to apartment conversions in Manhattan, but it takes a long time and is very expensive. And they will do some of that. Your phrase, “easy to convert anything into anything” is nonsense.

        • stan65 says:

          Hi Wolf,

          If you want to build an Amazon center and need a greater headroom, say 6m instead of 3m that you inherited, you just cut out the offending floor. There is nothing special there in term of construction procedures, any ordinary contractor can do that.

          Same goes for converting office into resi. All internal office walls are cardboard, ordinary navvies down that in a morning. New separating residential walls can be double cardboard or block, but in the overall structural scheme of things, this is nothing.

          Same goes for the bathrooms and toilets of new residential development. Every flat needs just one end 4” waste pipe, everything else branches into it within the flat. Aircon, data, heating and water, this is all soft stuff, completely irrelevant as far as structural shell goes.

          Trust me, we have done this many times. My developer clients keep doing this and keep making money.

        • Wolf Richter says:

          “you just cut out the offending floor.”

          You’re nuts. Floors are structural elements of a high rise building. They give the building stability. Cut them out if you want the building to topple, fine. This whole discussion is nuts. I’m outa here. You can argue with yourself.

        • stan65 says:

          Wolf,

          And yes, I have designed many a modern warehouse, so please believe me. Warehouses are an enclosure, with perimeter walls and internal columns and a roof.

          If Mr Bezos’ normal operation is based on an internal column spacing grid of say, 12x12m, and he gets to clock a half or quarter price commercial with columns grid spacing of say 6x8m, all he has to do is redesign his internal layouts to suit, and of course, re-code his robots to new layout.

          New internal layout redesign, including in-out logistics routing = what, a week for a good logistics team. Re-code the robots, what, say, a day.? A two if coders are slow.

          Maybe too much hassle if Mr B is looking at a property in rural Arcansas, but not an effort worth mentioning if he is Gramercy Park, Knightsbridge or Ginza.

        • Joe100 says:

          Can you suggest any sources of information on such renovations? I described this to a friend (retired, quite experienced commercial real estate lawyer) this morning on our dogs walk and he was quite interested and thought most local owners of empty commercial space (a lot) don’t realize this potential.

        • nick kelly says:

          ‘It’s easy to convert anything into anything.’

          There have been approx zero conversions of the most abandoned commercial space: malls.
          The cheapest way to convert a mall to residential or office is to demolish it. Since the demo plus dumping is costly it’s cheaper to find vacant land and go from there. That’s why there are hundreds of malls that have been vacant for decades but are still standing.

          Re: concrete. It sounds like you are going to be learning a lot more about reinforced concrete (RFC) in the days ahead.

          ‘it will be discovered that the concrete used in Collins Avenue block, was incorrectly specified’

           ‘incorrectly specified’: You mean this concrete plant got the mixing process wrong? Just the batch for this building or was in the habit of doing this? If so, this would the best news we could get, and would simplify a whole bunch of questions, including legal ones.

          When the investigation is complete it is very unlikely that any flaw will be found with the concrete as delivered to the site, or the other sites the plant supplied. What will be found is that concrete reinforced with steel rebar (the cheapest) is a time bomb and time is up. 

          The writer Robert Courland, in his book Concrete Planet, estimates that repair and rebuilding costs of concrete infrastructure, just in the United States, will be in the trillions of dollars – to be paid by future generations.

          But now we know: it won’t be future generations.

          I’ve just spent an hour on RFC and my reaction was: ‘Jesus’

          The industry just comes out and says: the life of reinforced concrete is from ’30 to 100 years’. So the collapsed building was already past its ‘best before’ date. But why did it only last 40 years, why not 100? What are the factors? 
          Above all, the condition of the rebar. Once exposed to moisture, it develops ‘cancer’, i.e., rust. But it doesn’t have to be visible. Concrete is porous and over time moisture can reach the rebar. As we have all seen by now, the building had lots of exposed rusting rebar. Conclusion: it was riddled with it. 

          It seems ridiculous that there is even a possibility of leaving the twin building occupied. Is the thinking that only other one got the bad concrete?

          Mention has been made of subsidence. If the reported amount over 40 years hazards a building, we’ve got a lot of evacuating to do. There are skyscrapers with more and none have collapsed. Their load bearing material is steel.

        • stan65 says:

          @Nick,

          When I read about the collapse, my professional curiosity made me look out for further info.

          A company of consulting engineers reported 2-3 years ago about deterioration of concrete and included pictures in their report. Pictures showed significant spalling, present evenly in loaded and unloaded sections of the building. This tells me that there are issues with specification of concrete (as in cement content, water content, cover to rebars)=(design), as well as placement (following the specification, compaction, curing)=(execution). Someone on this site mentioned that some contractors are acquainted with the deadly technique of using sea water for mixing (stealing)=(execution), and I would not be surprised to hear that some hacve developed this technique further to include the sand from the local beach for bulking as opposed to graded washed aggregate. The concrete I saw in the reports had the hallmarks of a variety of all these bad factors coming together, and it was also subjected to bad weathering and waterproofing which will have allowed seawater (rain) to come into contact with concrete and corrode it from the outside).

          Building was subsiding by 2-4mm every year for the last number of years. This is very bad and it would have lead to redistribution of forces in the building and elements (columns, beams) receiving loadings that they were not designed to. Either the designer did not finish off his foundations job so to make sure there are no settlements (design fault), or the contractor cut corners in construction (execution fault). Everyone knows Florida is full of sinkholes, but here in UK I have designed foundations for many a project where we pumped grout in underground abandoned mines for stabilization purposes. I am sure they got grout in Florida too.

          Additionally, the building pancaked just like that. This is a probable design fault and I would have expected more visible measures against disproportionate collapse. DC is a requirement on designer to put in place measures to ensure that collapse of one section of the building does not result in a wholesale destruction of the whole thing. For example, in my practice, we check all columns and walls in every structure more that 20m high, for lateral load equal to an explosion, that is 3.5tons/m2. That preserves the key elements. Adds a heck of robustness to the building for no or very little extra cost. Looking at the photos of collapsed building, I could not see any evidence of cross ties and longitudinal ties suitable for a 12-storey building.

          There are concrete structures in UK, and everywhere else in the world I am sure which are 75 and 100 years old and concrete is rock hard and serves its function happily, today.

          Nothing beats proper design and proper execution.

          Nothing can reverse bad design and excessive corner cutting.

          On this great site people keep talking about inflation and especially the type of inflation where you pay the same price for less product. Consider the above collapse and 200 people dead as a result of inflation – they paid a full price for a lot of good concrete but received just a little bit of it, mixed with a lot of (free) sand from the nearby beach and (free) seawater.

        • nick kelly says:

          Stan: if you have the profile in industry you seem to have, I assume you have access to legal counsel. You would be well advised to consult with them before continuing to publicly, in print, accuse the concrete supplier of homicide via gross negligence.

        • NBay says:

          I’m just an okie redneck builder. I’d just put in 6″ sleepers and a new sub floor and run all plumbing, electrical, HVAC stuff to the new 2×4 walls. People can live fine with 7 1/2 ceilings….I did. Code on that is kinda based on esthetics, used to be a lot of 9 ft.
          I’m sure low income people don’t give a rusty.

          Only problem might be extra weight of housing vs office building design, but sounds like Stan 65 could easily run steel beams where needed.

          Personally, I don’t like anything over 3 stories (which I’m in), and on the ground floor.

          Sounds like part of The Green New industry and Conservation Program stuff to me. Let’s get the whole show going and SOON!

        • NBay says:

          Just ask Socaljim about beach sand foundations……it is cheap and easy though, a lot of those Sears Craftsmen Bungalow self builders used it and never knew.

      • Michael Gorback says:

        Converting old anchor stores into fulfillment centers us in the SPG playbook. I don’t own SPG but the more I read these discussions the more I like it, especially with the expert input from guys here who have actually done the conversions like stan65.

        • nick kelly says:

          I would be more enthusiastic about the long term prospects, like for mortgages, if someone can tell me what the f##k a fulfillment center is An video game arcade, a bordello?

          It sounds like the hype the WeWork founder used to snow Softbank. How about a meditation center? SPAC!

  11. Paulo says:

    Is this the same Aviva that is also a big insurance underwriter? I send them a few cheques every year if it is.

    Just looked it up and I think it is.

    Hmmm, commercial property and insurance. Take your money and run, asap.

  12. IanCad says:

    The number of new office developments is at a record in London.
    A few cracks appearing but the madness will only be cured by penury.
    Not sure if the link will work but I’ll post it anyway.
    https://www.architectsjournal.co.uk/news/tower-hungry-city-of-londons-appetite-for-high-rise-is-as-fierce-as-ever

  13. JMM says:

    This “office building” concept is curious. It’s like working from home, but with an additional hour-long commute in between. Why would anyone put money in that?

  14. nick kelly says:

    A real estate investment is inherently and obviously short/ medium term illiquid. Always has been. The conundrum is seen in movie a ‘Wonderful Life’ also nothing new. If a bank accepts demand deposits or even 1-5 year term deposits and lends them in 30 year mortgages there is a risk of a run on the bank.

    The situation is more precarious where a private fund pools the money of private individuals to buy RE. There is no central bank that insures bank deposits
    to cushion the fund in a severe downturn. No one needing the money in less than 10 years should be in this, if at all. It is more the province of a Life Insurance Co, which via its actuaries, knows the average deposit will not be called in 30-40 years.

  15. Beardawg says:

    Doesn’t look like the ‘Rona had anything to do with these collapses. Just a segment of Brick/Mortar which has been crumbling for years. At least it is allowed to crumble in the UK.

    • roddy6667 says:

      Many lively discussions here on Wolfstreet about the decline of brick and mortar before ‘Rona rolled in.

  16. Nicko2 says:

    The Brits have perfected the skill of fleecing investors. It’s a talent honed from centuries of global Empire and colonialism.

    • nick kelly says:

      From Brit comedy sketch:

      ‘So what is America?’

      Oh, I don’t know. Massachusetts…

      ‘But that’s just a little bit of England.’

      Chorus: ‘THAT’S America! ‘

      The Brit empire was then, the US empire is now. The US has inherited some English lawlessness but also the concept of law, that there is something beyond power. This is noticeably missing in much of Africa and Russia for example, where the shakedown of business is standard procedure and an attempt to seek recourse in court hazards more than the amount extorted. See fate of Sergei Magnitsky.

      • VintageVNvet says:

        True enough nk, but not nearly far enough forward!
        True that England was the worst bad ”killer” for several generations, centuries even, and then got to fight it out with various and sundry EU ”nations” or at least what passed for nations between about 1800 when Nelson / they won at Trafalgar to at least when USA ”took over” the awful duties of being the world’s bully..
        But, it worked for the benefit of England/UK for a while, and, very very similarly, it has worked for USA for a while,,,, but only ”nominally” while the vast resources of the Commonwealth then, and now the equally vast resources of USA, were / are sucked dry by the operations of both to serve the oligarchy at the expense of WE the Peons ( thanks Unamused).
        The fix is the same as always,,, no matter how short lived it may be, as it has been short lived past times, SO FAR ::::

      • MonkeyBusiness says:

        Sergei Magnitsky was no hero. I read Browder’s book, but new facts have come to light since then, and the only thing I am sure of now is that Browder was and is still a scum.

        “There is something beyond power”. Anyone persecuted for invading Iraq? Anyone arrested during the mortgage crisis? The US Speaker of the House and her husband have been insider trading for some time now without consequences. Clearly you live in some magical land.

      • stan65 says:

        C’mon, Nick, you can do better than that.

        Mangitsky, Browder, all these willing participants and instigators of the dirt slinging environment that all our western countries politics has descended into.

        Who would you champion next. Scripal and Navalny?

        Starting from grass roots level, to the top echelons of state governments everywhere, well at least in U.K., EU, USA, all one can see is outright incompetence peppered with an enormous amount of corruption and dishonesty.

        • Auldyin says:

          Way to go Stan!

        • nick kelly says:

          To all. Did I say England or US always acted morally? No, but the concept exists.

          A famous US writer whose name escapes me toured Russia in the 19 th century and noted how little the idea of objective ‘law’ occurred to them. He also noted they thought his Western ideas were ‘quaint’. The country was only a few years out of serfdom, centuries behind the UK.

          I take it everyone knows of ‘habeas corpus’
          Professor Dershowitz describes it as a ‘feature of the US Constitution’ which is bit sad for a professor of law, but although it precedes the US by centuries, I guess it’s also that. Anyway, believe it or not there is no such requirement to charge a guy or release him in Russia or China. All the people on this site calling politicians crooks, do you think you can do that there?

          And ya, I do champion Navalny. I just wish he didn’t have so much guts that after surviving poison he returned to Russia.

        • MonkeyBusiness says:

          And morality does not exist in other countries? ROFL. London is a cesspool. It’s been named the tax avoidance capital of the world, and one of its main specialization is helping Russian oligarchs plunder Russia. If all of that is done under the law, then the later is a joke.

          Laws have existed from the times of Hammurabi, but someone’s still acting as if everything awesome came from either the US or the UK. What a joke.

        • Michael Gorback says:

          Just because a certain member of Congress thinks islands can flip over if you build too much on them and that another stated “We do not have a crisis at Freddie Mac, and particularly Fannie Mae, under the outstanding leadership of Frank Raines” doesn’t mean they’re incompetent.

          Ignorant and stupid, yes. But when it comes to staying in office and being corrupt, they are geniuses.

        • MFG says:

          Browder:

          Congress passed Magnitsky Act against Russia in 2012, based on the lies of Wall St hedge funder William Browder.

          Browder renounced his US citizenship, perpetrated fraud & tax evasion in Russia, was convicted & banned. Browder then
          fabricated the Magnitsky myth and used his $$$ to try to suppress the truth.

      • MFG says:

        Um, Navalny was not poisoned. But he did liken non-white immigrants to cockroaches. Navalny is a NED asset, nothing more.

        • Auldyin says:

          MFG
          Nav has sub 4% support in Russia, he is seen as a drama queen and puppet of the West.
          Vlad supported a free referendum in Crimea which overwhelmingly sided with Russia and not with the half of Ukraine hankering, with US support to join the west. Within 2 years, start to stop, he had built road and railway bridges between the 2 countries and driven the first truck over it personally in a leather bomber jacket and Russian flags on the fenders. I watched it live and as a civil engineer had never seen anything like that for at least 50yrs in the west.
          Western leaders would die for the popular support Putin has, that’s why they hate and denigrate him at every opportunity. Try dumping your MSM sometime.

  17. Petunia says:

    There’s a brouhaha going on at the GSEs. Top guy was recently replaced and had this to say:

    “When the housing markets experience a significant downturn, Fannie Mae and Freddie Mac will fail at their current capital levels,” Calabria said.

    GFC 2.0 coming to a city and town near you.

    • MonkeyBusiness says:

      Unlikely. Money will be printed to bail out both Freddie and Fannie.

      Bankruptcy is expensive for poor people, and both Freddie and Fannie are poor.

    • Maximus Minimus says:

      Oh, no. I don’t want to see crying US politicians saying noone could have possibly seen it coming. That would be terrible to watch.

      Fannie and Freddie (as well as similar agencies across the West) have grown too big to fail. The housing market would crash and burn if it was left to market forces alone.

  18. DanS86 says:

    Feeder Funds…Madoff anyone???

    • nodecentrepublicansleft says:

      Madoff is a wonderful example of that US “morals” being touted a few comments back. A man so wonderfully scummy that everybody ignored his crimes for decades (like Trump but smarter….he made the money himself instead of being born into it).

      “…the concept of morals exists”….JFC man, what on earth are your bloviating about?

      RE: the “EXISTENCE” of the “CONCEPT” of “morals”….why don’t you just try to sell me some “Sunshine” while you’re at it?!!?

      Got any bridges for sale too?

  19. doug says:

    ‘Great white shark bites man swimming at beach near San Francisco’
    Headline today….

    Wolf Please be careful out there swimming.

    • nodecentrepublicansleft says:

      A great white is just a fish…..wouldn’t stand a chance against a Wolf.

  20. Kenn says:

    “The Financial Conduct Authority has proposed replacing the typical daily redemption notice period with notice of up to six months to prevent funds seizing up as investors stampede for the exit in times of market turmoil. But as of yet no definitive action has been taken.”
    The action will never happen. The wealthy shareholders with inside information want to be sure they can get their investment out quickly before the fund closes its doors for the retail investors.

  21. Andy S says:

    I work for an Aviva outsourcer and we administer this fund for some of their pension products. While I was aware of the suspension and it’s retraction recently, it’s interesting to get this info from Wolf! News to me.

  22. Michael Gorback says:

    In 2019 Motley Fool started CRE investing letters. One is pretty straightforward. They pick REITs and equities.

    The other investing letter offer REITs and equities but also access to private placements. It costs 10x as much as the first newsletter.

    Then I got an email from Motley Fool about a company that owns 15 residential properties. I was looking through the prospectus. Although they claim annual payouts of 6-8% here’s the fee structure:

    Offering Price Generally equal to the prior month’s NAV per Unit for such unit class as of the last calendar day of such month, plus applicable upfront adminstrative fee
    and selling commissions.

    Minimum Investment $100,000

    One-Time, Upfront Administrative Fee 0.25% – 2.0% of gross purchase [The front-end load equivalent?]

    Annual Asset Management Fee 1.25% of NAV
    per annum [How does 1.25% of NAV impact your payout return?]

    Acquisition Fee 0.5% of each asset purchase price
    (not applicable for debt and preferred equity investments)

    Performance Allocation 10.0% of annual net new profits (i.e. total return), subject to a 6% annual hurdle and annual high water mark [This is starting to have a 2 and 20 flavor]

    [Here’s the 12b-1 equivalent]

    The Fund will target to repurchase units
    from investors seeking liquidity no less
    than once per calendar quarter. Units will
    be repurchased at current NAV with the
    application of the following discount schedule:
    $50,000 – $249,999 2.00%
    $250,000 – $999,999 1.00%
    $1,000,000 – $4,999,999 0.50%
    $5,000,000 + 0.25%

    [And another haircut depending on when you sell.

    After 1 Year 10.0%
    After 2 Years 7.5%
    After 3 Years 5.0%
    After 4 Years 2.5%
    After 5 Years 0.0%

    This is assuming they can pay for mass redemptions. But at least they let you out.

    What’s actually left over?

    • nodecentrepublicansleft says:

      I guess “fools” are what the “Motley Fool” depend on, huh?

      Color me shocked…..

  23. Auldyin says:

    This is a manifestation of the notion that property is on a one way track upwards, which has persisted in UK for years. Open-endeds are great on the way up, but a disaster on the way down when people try to get out quickly, rarely experienced in the past.
    For property, in particular, closed ends are much better because the manager does not need to sell assets at a bad time to meet redemptions. What would normally happen is that the share price would move down to a discount against the NAV, shrewd investors can then watch for a bargain and get in when the discount looks like closing again.
    It takes an extraordinary level of financial mismanagement to totally crash a closed-end fund to zero share price. Usually they sell up assets in a controlled manner and offer cash back to shareholders. Shareholders can vote for a wind-up at almost any time.
    There is a movement afoot to recommend that property or other illiquid assets should only be held in closed end funds

  24. Michael Gorback says:

    Then you have CRE crowdfunding companies. These offer access to single private placements. They don’t trade on any exchange. Your money is locked up for a given holding period, say 5 years or so. Like any crowdfunding endeavor you probably won’t see any returns for several years.

    It’s a single project, not diversified, so high risk/high reward like a portfolio with only one stock in it. Not sure these are attractive at my age. If you’re younger and can wait it could be good, but at 68 I’m not sure I’ll get to enjoy the returns very long after several years of waiting.

    With either the single crowdfunded deals or the ones with a portfolio of multiple properties I feel like we’re the dumb money. For one thing if you have a hot prospect on a CRE project, why do you need crowdfunding?

    • Beardawg says:

      MG

      Great observations. It has never ceased to amaze me that when I have bought single properties (rentals), rehabbed and rented (Cash flowed) them and then turned a tiny profit a few years later, my Cash on Cash ROI might be 10% or so. If I added layers of administration into my recipe, I might do 4% in a good year, yet these “funds” offer projected double-digit returns and everyone piles in.

      The sales people, lawyers, bean counters, contractors and prop managers make a living. The investors somehow always end up scratching their heads unless they can get out early.

      It’s why I did real estate as a one man show for 20 years.

    • Maximus Minimus says:

      Where do you put your investment money when everything offers zero percent for years guaranteed. Pine in the sky sounds good.

      • Old School says:

        Looks like it could be 5% inflation and fed buying up most treasuries to keep real rates highly negative until something breaks. Precious metals look ok if that’s the case.

        If it’s like last two times and assets drop big time, then cash is good for dry powder. It’s really bifurcated outcome.

        I am just trying to not make a giant mistake and run very conservative portfolio. Left a lot of money on the table so far, but better out too early than too late.

        • Maximus Minimus says:

          Unfortunately, and this is anecdotal info, when the Weimar inflation kicked in, lots of people had jewels/gold, but they couldn’t exchange them for food: times were so desperate, and the outcome uncertain. You can use precious metals if you have nerves from steel, and believe times will turn.
          Gold is that kind of a hedge.

        • Crunchy says:

          Max Min,

          I find that hard to believe. If folks in hyperinflating Weimar Germany wouldn’t exchange their surplus food for gold or silver, just what was it that they wanted? What else would be able to withstand the test of time in a poorly managed monetary environment without being erased in value, while being so easy to exchange?

        • c_heale says:

          They probably only wanted food, clothing, and shelter, none of which can be made of gold.

      • Michael Gorback says:

        That’s why I’m looking at REITs. However, I don’t like much of what I’m seeing.

        I’m warming up to SPG. I also like CareTrust because of the demographics of an aging US.

        Shopping malls? Not unless they offer something new that breaks the trend set years ago.

        Entertainment? EPR might be attractive because it owns places people would want to go, like TopGolf, museums, aquariums, etc. The dead body floating in the pool is half their portfolio is movie theaters, including AMC.

        Although there’s enthusiasm for medical real estate I’m skeptical. I think whoever is in love with these REITs doesn’t understand that half the doctors in the country now work for someone else. Those people are going to pick the offices, not the doctors, and most likely they will build the offices.

        I feel the same way about MRI facilities, ASCs, labs, etc.

        If your doctor works for HCA you’re going to an HCA MRI. If your doctor works for Kelsey-Seybold you’re going to their lab. Most of these services will be either on campus or an off-campus facility they own.

        BTW, as a hospital-based service it will cost you more. An EKG done at a doctor’s office on a hospital campus costs more than if done at a private office across the street.

        The hospitals are happy to pay their doctors more than they could make in private practice. Even a family doctor throws off millions in referrals for imaging, lab tests, PT, etc. A surgeon is a gold mine. A cataract removal with placement of an intra-ocular lens costs about 2x at a hospital outpatient surgery department as at an ASC.

        Maybe I’d go with residential REITs but not in a blue state. That’s not political, it’s just that in terms of job losses they lead the pack. But even in red states that are picking up the blue state emigrants there are hot zones I’d be afraid of, like Austin.

        • Petunia says:

          Just in case you didn’t know, the average social security check is ~$1500, and that will not cover the average rent in a residential REIT.

          Maybe the home builders who cater to the mega landlords will be a better bet, in the short term. Until they deliver the homes and nobody can afford the rents.

  25. Michael Gorback says:

    BTW, looking at demographics alone there’s going to be a big market for senior living. I think something like CareTrust (no ownership) is appealing. Dividend about 4% and not hit during covid. The price took a large dive at first but from pre-covid to present the price is up 15% or so.

    And they’re still making a lot of old people, a 3rd of whom are morbidly obese! This is a good market. Watch Fox News at lunch time and note the advertisers: walk-in tubs, urinary catheters, elevators for your stairs, and amazingly life-like celebrities such as William Devane hawking gold and Pat Boone hawking – I forget. Someone has done some amazing claymation and CGI recreating those guys!

    Vestas, OTOH, cut its dividend and the price is essentially the same as January 2020. But Ventas is only 44% senior living. The rest is health-related stuff like medical offices.

    I don’t know how it is elsewhere but medical offices can vary widely within a few miles. One hospital near me built a new office tower several years ago. There’s still a sign in front saying “50% occupied “. That might have sounded good when it was completed but IMHO maybe they should take it down.

    About 1-2 miles away a large hospital group bought a small also-ran facility, pumped it full of doctors, bought the restaurant that was sitting between the main building and the ASC/offices/PT and replaced it with the obelisk from 2001 A Space Odyssey, only much bigger.

    The way medicine is going the office RE is going to be hospital-owned. Non-hospital based docs are now less than 50%. That’s why I sold my small office building before I retired.

    A disturbing trend for SFH is that the only growth in ownership has been in the 55+ demographic. Millennials, Gen X, whatever – not buying SFH as much. Even well before covid the under-55 crowd was decreasing as owners of SFH.

    As us dinosaurs go to the big fossil field in the sky that’s going to leave a hole. And heading straight for that hole is a huge increase in building. I don’t see good things ahead for housing.

    In addition, the trailing generations are deferring having kids. It’s new household formation that drives not only SFH purchases but the mom-cars, furniture, clothing, etc that comes with raising a family, stimulating the economy.

    Maybe they’ll rent from Blackstone. They have to live somewhere. Maybe residential RE is the future – until the above oversupply-meets-hole scenario drops SFH prices to attractive levels.

    I’m staying out of that sandbox as well.

    There’s a REIT – Getty? – that owns a lot of gas station and convenience store CRE. I dont see those going away anytime soon. Maybe in 20+ years when EV finally takes over, solar and wind power everything, and Proof of Stake cuts the megawatts of energy suckage 99% from Proof of Work for crypto. By then I’ll be living in a CareTrust facility yelling about why they need to impeach President Hunter Biden.

    • Petunia says:

      The only REIT I’ve seen in the last couple of years that was even interesting is one that invests in towers. Yes, the ugly towers with all the communications crap on them. The guy hawking them was a former SFH REIT CEO who sold out of that space.

  26. Maximus Minimus says:

    Are these massive mutual fund redemptions limited to UK, or do they receive a mention because Nick Corbeshley covers only UK?

  27. joe2 says:

    ” moratorium was recently extended to next March”

    Is that correct? How long does that make it? 2 years? Is anyone with a brain left alive over there or is everyone busy hiring secretaries to screw.

    Clearly the best strategy is to run your leased premises as hard and fast as you can. Squeeze in a boiler room, bookmaking, Bitcoin exchange, whatever. And then plan a bankruptcy for February.

  28. Frank Santos says:

    darn, those low interest rates did not help real estate as everyone piling into these things thought. I guess the interest rates on our savings of 2.27% to 3.29% government bonds, CD’s don’t look so bad now. I work 60 hours a week working hard for my $1265.25 net pay. They all designed it to make you take risk when before the banks, lenders had to take the risk in mortgages, real estate. We remember the savings and loans crap that happened. Never got caught up in fake, high supposedly promised high returns or interest rates.

    Myself and my family every month have to be in surplus as we have been from day one 30 years now. Even if it only $50 or $100 some weeks but most weeks were $350 to $400. We rent and save the rest. We finally hit $750,000 mark at ages 56, 57. The 80’s and 90’s helped alot with 6% to 10% interest rates on our savings, CD’s.

  29. Mira says:

    What if the office floor space was never occupied in the first place ??
    While no one was counting & cash flow was good, it didn’t matter weather there were tenants or not .. the books cooked up nicely.
    But as the workplace got smaller & money got tighter .. the right thread was pulled & the hem of the garment fell.
    I can see the same sort of thing happening here .. not just because of working from home, but necessary down sizing due to business shutting down, bankruptcy, mass unemployment, not much money around, you name it.
    We in Australia are being threatened with segregation if we do not front for the jab .. we are heading for a crisis the likes of which we have not seen since the 1920 .. maybe.
    Who knows how many trillions of dollars Little Scottie Morrison & his state counterparts have spent .. if people don’t work there is no salary, no super fund contributions flowing to investment funds.
    How long can this melodrama go on for ??
    The money is being thrown in all directions trying to keep the ball rolling, we will soon be asking ..”Who owns Australia” for the trillions that we owe.
    And it would be boring ??? if it wasn’t so scary.

    • Mira says:

      One thing .. Australians are about informing the political arena that is relevant to them .. “At the next election .. will we be voting for you ?? .. do you think.”
      There is nothing like a politician who can see his or her career slipping away from them.

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