(Finance) – I real estate investment funds (REIF) they could be a danger to the stability of the financial system, after having grown significantly over the past decade and having a large market footprint in several euro area countries, where the outlook for commercial real estate (CRE) markets has deteriorated significantly. This was stated by the European Central Bank (ECB) in a Macroprudential Bulletin.
The example of the Blackstone Real Estate Income Trust is given (BREIT), US fund of the giant Blackstone, which in recent months has recently recorded a increase in refund requests, mainly from Asian investors. As a result, BREIT had to limit redemptions in line with its withdrawal limits, make significant real estate sales and source new investments to ease liquidity pressures.
Furthermore, the ECB says that previous shocks have shown that i REIFs in the euro area are exposed to significant liquidity riskstherefore any deterioration in CRE markets could be magnified in the REIF sector.
The net asset value (NAV) of eurozone REIFs is more than tripled between the fourth quarter of 2012 and the fourth quarter of 2022, going from 323 billion euros to 1,040 billion euros.
It is also pointed out that the use of leverage creates links between REIFs and other financial institutions acting as credit providers. As a result, “the tensions in the REIF sector could spill over to other financial institutions, compromising the stability of the financial system in general“, reads the study.
Ultimately, according to the ECB, REIFs should therefore “be subject to a common and comprehensive strategic framework to reduce the liquidity mismatch and risks to financial stability”.