A gloomy outlook for commercial real estate valuations coupled with higher borrowing costs from rising interest rates ushers in the textbook liquidity mismatch. In October 2022, a spike in pension fund redemptions from UK listed open ended property funds gave validation to the FSA’s Long Term Asset Fund Structure.
The ECB closely monitoring vulnerability in CRE assets in Europe has called for the creation of a Liquidity Management Toolkit to be made available to fund managers and for the ESMA to take steps to homogenise redemption fees and redemption gates across terrritories. Yet regulation alone cannot offer the panacea and often does not align with market movement pace.
At such times soft liquidity management tools such as title insurance can help shift assets without resorting to firesales.