By Richard D. Hylton As the problems in the commercial real
estate markets drag on, some of the nation's biggest real estate
investment funds have been hard hit by the fall in property values.
In the last few months there was a wave of markdowns of the
appraised values of properties held by nearly all the major property
Not surprisingly, many pension funds are trying to get their
Many of the write-downs averaged 5 to 10 percent of the value of
the property portfolios, but in a few cases they approached 20
Taking note, the stock market continues to hammer nearly all
publicly traded real estate mutual funds, partnerships and real
estate investment trusts, known as REIT's. Real estate market
experts and developers say the worst is yet to come.
With the commercial banks and the insurance companies now
petrified of lending even to the best real estate ventures, the
withdrawal of pension fund money could worsen the shortage of credit
in the markets and further weaken property values.
And there is every indication that the pension funds want to
reduce their exposure to real estate.
``You have some disappointed investors in the asset class,''
said David Shulman, the managing director who heads real estate
research at Salomon Brothers.
``Real estate investments were oversold as something that would
never go down in value, and now that they are seeing deflation in
values, people are getting nervous,'' he said.
``There is also a fear that the value in these funds may still
be over-appraised, and so if they can get out now they get out at a
premium to the actual value.''
Shulman noted that over all the pension funds were probably
still providing a small net addition to real estate investments but
the rate of growth had slowed sharply.
In many instances, pension funds are finding that they cannot
liquidate their investments in the property funds.
Withdrawal requests are climbing steadily at many of the
property funds, but with so few buyers in the property markets the
fund managers cannot sell enough real estate to get the cash to
return to their clients. So withdrawal requests are piling up.
Some funds have even changed their refund policies from a
``first come first served'' basis to a prorated approach.
Nearly all the large property funds, which are run by insurance
companies, banks and real estate companies, reduced the asset values
of their portfolio over the last quarter. …