Redemption Requests Slow Inflows to Real Estate Interval Funds
Interval fund structures have been widely adopted by the institutional management sector, including for commercial real estate.
April 19, 2021 | Beth Mattson-Teig | Wealth Management
Real estate interval funds are working to regain the momentum they were enjoying pre-pandemic. Steady inflows of new capital around $2.2 billion per year between 2016 and 2018 took a leap forward to $3.5 billion in 2019. Yet, as with much of the rest of the real estate investment universe, 2020 brought a drop in fundraising and negative net inflows due to a surge in redemption requests from investors.
According to data from Robert A. Stanger & Co., redemptions for 2020 totaled more than $2 billion, while fundraising slowed to $1.8 billion, resulting in net inflows of $278 million. Many in the sector are hoping that 2020 will end up being only a painful hiccup in an otherwise strong market for real estate interval funds. Interval funds are not able to gate redemption requests, and most funds allow up to 5 percent of shares to be redeemed per quarter as stated in their prospectuses.
“It was the uncertainty that drove redemptions, and there also was a bit of investor psychology at play,” says Trisha Miller, executive managing director of Robert A. Stanger & Co. and chair emeritus of the Institute for Portfolio Alternatives. People starting filing redemption requests in late spring and summer. Once the queue started forming and funds went pro rata, it triggered even more redemption requests from financial advisors. “My impression is that companies are pretty committed to clearing the queue in the near future, and it’s likely that those redemption requests will come down as there is less uncertainty and more optimism,” she says.
