UBS Liquidating $2 Billion Real Estate Fund As Office Market Crumbles

UBS Group has announced plans to liquidate $2 billion of properties in its Credit Suisse Real Estate Fund International — including 12 office properties across the United States and Canada.  

UBS’s liquidation of its office-heavy real estate fund offers a stark reminder of the broader economic challenges the commercial real estate sector faces today. 

On top of high interest rates and fears of a possible recession, the rise of remote and hybrid work models across North America has also dramatically reduced demand for traditional office spaces. 

In July, U.S. markets office vacancy rates reached a new record of 20.1% — up from 19.8% the previous quarter, according to a report published by Moody’s.  

The fund, with 80% of its assets invested in office properties, has been hit with investor requests to withdraw their money. UBS explained that fulfilling these requests would require selling properties at a disadvantageous time — potentially leading to losses for remaining investors. 

Given the current challenges in the commercial office market, UBS determined that fully winding down the fund is the better option. This decision should allow for more controlled liquidation over time, which the fund plans to use to protect the value of the assets for all investors involved. 

CoStar reports the Credit Suisse Real Estate Fund International was originally acquired by UBS following the collapse of Credit Suisse in 2023. The demands for redemption requests increased over the past few months, reflecting how investors are losing faith in traditional commercial office investments. 

Over $1 trillion in troubled real estate loans are expected to accumulate in the U.S. by the end of this year, putting additional strain on an already fragile market. This trend is further shown in the overall valuation of the fund’s global property portfolio, which decreased 12% between December 31, 2023, and June 30, 2024.  

As the commercial office sector adjusts to economic challenges and the growing influence of flexible work environments shaping the future of work, UBS’s decision follows similar actions by other major entities in the real estate investment trust (REIT) sector.  

Reuters reports that several regional banks are increasing their provisions for credit losses to mitigate the risks associated with troubled CRE loans and an investment environment filled with high-interest rates.    

The decision to liquidate these assets coincides with broader office space trends in the commercial real estate sector, which has been under significant pressure due to shifts in work culture.