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CRE Valuation Uncertainty Threatens Private Equity Real Estate Model

Appraised values diverge most from sale prices.

By Erik Sherman | January 02, 2025 at 06:30 AM

Falling CRE valuations have been a thorny problem for the industry during the last few years as professionals know. It can affect the ability to refinance properties and possibly undermine mortgage covenants.

There is also an entirely different effect they can have, which is on the U.S. private equity real estate model, wrote Jim Costello, executive director, of MSCI Research. Specifically, he noted that gated withdrawals at some open-end CRE funds are adding risk to the model. “The heart of the problem is uncertainty around asset valuation and the ability of limited partners (LPs) to get at their capital,” he wrote.

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