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(Bloomberg) -- The surge in global interest rates may be a tipping point for a handful of Austrian open-ended real estate funds that for years have defied one of Europe’s most troubled property markets.
The two largest retail real estate funds in Austria, run by units of UniCredit SpA’s Bank Austria and Erste Group Bank AG, limited redemptions last month after investor payout requests strained liquidity reserves. Both have pledged to accelerate asset sales.
The gatekeeping measures come remarkably late for funds with lax payout structures long banned in countries such as Germany, operating in a market that’s faced major real estate headwinds for years.
Austria is home to one of Europe’s largest ongoing insolvencies: the 2023 meltdown of Rene Benko’s €23 billion ($25.7 billion) property empire. Non-performing loan ratios for some types of Austrian commercial real estate have topped 14%.
“The run on the real estate funds will add to valuation pressure in an already strained market,” said Florian Beckermann, the head of Austria’s IVA investor association. The funds have sold most of their good assets in recent years and it’s questionable whether buyers will emerge for the rest, he said.
Real estate funds across Europe have faced liquidity troubles, exacerbated most recently by the European Central Bank’s rate increases. DWS Group, Deutsche Bank AG’s asset management arm, capped redemptions at its Grundbesitz Europe fund last month.
At the heart of the recent developments is a liquidity mismatch between investors’ right to withdraw money on a daily basis at net asset value, and the long-term nature of the underlying property investments that makes quickly raising cash difficult.
Safeguards long called for by regulators and adopted by Austria in a 2021 law are set to come into force at the beginning of next year after a lengthy transition period. Those measures will include a 12-month mandatory retention period for new investments, and a similar waiting phase to access redemption requests.
Together with the increase in borrowing costs, which are likely to put further pressure on property prices, investors have started to line up to take out their cash, overburdening liquidity reserves built into the funds. Both Austrian funds qualify as the highest-quality, so-called gilt-edged investments often used in trust structures.
To be sure, the funds have invested prudently and returned an average of 2% to 2.4% annually over the past 10 years. That was an attractive performance for an asset assumed to offer daily liquidity in the years of negative borrowing costs, but has lost its appeal with the European Central Bank’s main rate at 2.5% and likely to rise again as soon as next month.
Bank Austria’s Real Invest fund manages about €2.4 billion worth of properties, mostly in the largest Austrian cities. Erste’s Immobilienfonds holds €1.3 billion, including about 45% in German assets.
“Since the measure was introduced, redemptions have remained at a persistently high level,” said Manfred Lentner, chief risk officer of Erste Immobilien. “There are currently no signs of a decline.”
Bank Austria’s Real Invest said it expects the liquidity measures to be only temporary.
“The fund management is working on further property sales, to ensure the conditions are in place for investors to sell,” Real Invest said in emailed comments. “Purchasing fund shares is also still possible.”
An open-ended fund of Liechtensteinische Landesbank has been in the process of winding down its €720 million portfolio since October 2025, after failing to improve its liquidity situation over 24 months of suspended redemptions.
“Liquidity restrictions in investment funds are primarily designed to protect investors,” the Austrian financial regulator FMA said in emailed comments. “They help ensure fair and equal treatment of investors, and reduce the risk that funds have to sell assets under pressure to meet redemption requests.”
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