OP Fund Management Company has announced that it will temporarily suspend fund unit redemptions and subscriptions for two of its real estate funds due to the challenging real estate market situation.
The funds affected are the OP-Public Services Real Estate (OP-Palvelukiinteistöt) and OP-Rental Yield (OP-Vuokratuotto) special common funds.
The fund investing in service and daycare centre properties has 13,000 shareholders, while the one investing in rental apartment properties has 38,000 shareholders. Most investors are private individuals.
This means that during the suspension period, investors will not be able to redeem their investments for cash, and no new investments will be accepted.
"There will certainly be feedback. The number of inquiries has already increased. The most common question is how long the suspension will last," said Juha Takala, CEO of OP Fund Management Company.
This situation is completely new for the company, according to Takala.
"Yes, this exceptional situation is the first time it’s happening with real estate funds."
According to the company, the decision stems from the challenging state of the real estate market currently.
Since the end of 2022, selling apartment buildings or office property portfolios to cover redemption requests has been slow, and property prices have fallen.
"It hasn't been possible to sell large portfolios at fair prices. By suspending transactions, we ensure the fund doesn’t have to sell properties at prices significantly below their fair market value, which would not be in the best interest of unitholders," Takala said.
The CEO said that subscriptions and redemptions will resume once the real estate market stabilises.
"We are closely monitoring the market situation. We will inform shareholders of any changes as soon as we have new updates."
A real estate fund allows investors to pool their money to invest in income-producing properties, such as office buildings or apartments. These investments offer exposure to real estate markets without the need to directly own property.
No deadline for suspension
It is now estimated that the wait for those expecting their funds can be quite lengthy.
Redemption periods in real estate funds have already been extended to 9-12 months, and suspending redemptions will only lengthen this wait.
Other institutions are facing difficulties as well. In addition to OP's two funds, Mandatum, EQ, Evli, S-Pankki, and Ålandsbanken have also reported suspensions or redemption limits in their real estate funds. There are 29 real estate funds operating in Finland.
There is no set deadline for the temporary suspension.
"A deadline could, at worst, trigger a forced selling wave, which could have significant negative impacts on the stability of the financial markets and property market prices. Furthermore, a deadline could be problematic from the perspective of fair treatment of unit holders, especially for remaining investors," said Marko Hovi, head of division at the Finnish Financial Supervisory Authority.