After the UK voted to leave the European Union about 100 days ago, the first direct impact on the world of private real estate was seen in the sudden decision by insurance giants Standard Life and Aviva to suspend trading on their open-ended retail property vehicles, following a run from jittery investors to withdraw funds.
Within days, five more firms, Canada Life, Aberdeen Asset Management, Columbia Threadneedle, M&G Real Estate and Henderson Global Investors, followed suit, triggering widespread fears that the UK property market was on its knees.
The implosion never happened, but these firms have given us a reminder that it is never a good idea to act in haste. The uncertainty created by the referendum result has led to the affected firms taking wide-ranging approaches to try to combat the threat of nervous investors cashing in their chips, as well as a lack of liquidity in the funds.
In mid-September, Canada Life and Columbia became the first of the affected firms to completely lift the suspensions on their property funds, with Columbia stating that it had sold a number of properties at a discount of just 1 percent from the last independent valuation prior to the referendum.
Two weeks prior to that, Aviva Investors took the opposite approach, becoming the first firm to gate its fund, telling investors they would have to wait until January 2017 at the earliest before they could withdraw funds.
Days after suspending trading in its property fund, Aberdeen issued a 17 percent knockdown on all withdrawals. What followed has been described by numerous voices in the industry as a “panic window,” where several assets were flogged at reductions of almost 20 percent.
The three remaining firms, Henderson, M&G and Standard Life, have yet to make any decisions regarding their gated funds, but have been quietly going about their business in recent weeks, selling the odd asset at nowhere near the levels seen in what was widely referred to as the “post Brexit panic window.”
The most notable of these discounts involved the London office building 10 Hammersmith Grove, which was acquired by London-based investment manager Brockton Capital in late July for around £85 million ($112 million; €99 million) from Aberdeen, a 19.5 percent discount on its pre-referendum price of £105 million.
One City of London-based lawyer suggested that “patience and a calm approach” had been rewarded, stating that many in the legal fraternity considered Aberdeen taking such a haircut as “hasty” and a “fool’s errand.”
The lawyer went on to say that it is much better to have a real estate asset than capital, suggesting that cash is not king at the moment, given the low-interest rate environment and relatively good yields on offer in the real estate sphere compared with government bonds or private equity.
One London-based analyst also extolled the virtues of patience, noting that deferrals of redemptions or trading suspensions are not necessarily a bad thing because they are seen to protect the long-term interests of the investors, despite the perceived negative signal to the market. In the property world, such moves are actually appreciated because you are not distressed selling.
In the days following the Brexit referendum vote, many fund managers and investors reacted in a panic, leading to investment decisions that had negative repercussions.
While the overriding sentiment is that it is still too early to see what impact Brexit has had thus far, one lesson already learned is that it is very difficult to make smart investment decisions when you let your fears get the best of you.