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Economy & Business

Investors Pull Funds From Britain's Commercial Real Estate Market

DAVID GREENE, HOST:

Let's look at one big impact from that vote in the United Kingdom to leave the European Union. Many investors who have put a lot of money in real estate in Britain want their money back amid all this uncertainty. But they're being told they can't cash out right now. It's unclear what effect this so-called Brexit vote will have long term on the real estate market - and on other markets for that matter. Let's turn to NPR's Jim Zarroli who's in London. Jim, good morning.

JIM ZARROLI, BYLINE: Good morning.

GREENE: So who exactly are these investors who are being told they can't get their money back, and why are they being told that?

ZARROLI: Well, these are people who put money into investment funds that own, you know, big commercial properties - office buildings, retail stores, that kind of a thing. This has been a really lucrative market for years because real estate in Britain has been so hot. And a lot of outside money coming in from overseas - lots of big banks have lent money to commercial real estate. But now, since Brexit, all of that has changed. And people are wondering - is Britain going to be the big commercial and financial center that it has been until now? And because of that, some of them are pulling their money out.

GREENE: So this is worry about the future. I mean, if Britain is not part of the EU, this is not going to be such a hot market where you can expect to make a lot of money. And they're thinking, maybe I want to put my money elsewhere.

ZARROLI: Right. And the thing about these real estate funds is they're not very liquid. It takes time to sell a big office building. And so if all of these investors rush for the exit, there's no way that these funds can get the money to pay them back all of a sudden, unless, you know, they start to sell everything at discount prices, which is - you know, that's what happened in 2008. And that is the kind of thing that everybody wants to avoid right now.

So the funds are saying to their investors - we'll pay you dividends. We'll pay you income from what you've invested in. But if you want to pull your money out altogether, you're going to have to wait some period of time. They haven't said how long. Or if you want to withdraw your money right now, you have to do so at a big loss.

GREENE: But you mentioned 2008. I mean, there's concern that if these investment funds figured out a way to start giving people their money back, I mean, we could have a real financial crisis.

ZARROLI: It definitely is one of the concerns. I mean, the banks in Europe and the banks throughout England, really everywhere, are linked in a lot of different ways. And there's a - always a fear of contagion. You know, whether that would happen this time is not clear. But that's certainly what investors are worried about.

GREENE: Well, Jim, I guess this is just one aspect of a larger question right now. I mean, financial markets across the U.K. and across Europe are really at an uncertain time.

ZARROLI: Yeah. Just one of the things that's happened is that the value of the pound has dropped quite a bit, which is great if you're going on vacation to England. But it's really a complicated and messy situation for the financial markets. I mean, if you're a British company or a bank and you owe money in euros, for instance, and the money you have is in pounds, then all of a sudden, you have this problem on your balance sheet. And this is the kind of thing that happens all the time in banking. And it's one of the reasons why investors are so afraid right now.

GREENE: All right. That's NPR's Jim Zarroli who's reporting on the aftermath of the Brexit vote in London. Jim, thanks.

ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.