Property Funds Hit Hard as Slump Infects Commercial Side

The Washington Post reports:

Fidelity Investments, Franklin Resources and Kensington Investment Group are the biggest losers in a decline by U.S. real estate funds that wiped out $13 billion in the past three months.

Property funds, the best performers in 2006, slumped 16 percent since May 14, the most of any category tracked by research firm Morningstar in Chicago. The $5.9 billion Fidelity Real Estate Investment Portfolio, the largest among the group, fell 19.7 percent. The $718 million Franklin Real Estate Securities Fund and the $500 million Kensington Strategic Realty Fund each dropped 20.3 percent, the most among actively managed property funds with more than $100 million in assets.

House prices will suffer their first annual decline since the 1930s as rising mortgage rates hurt demand, the National Association of Realtors in Chicago said. Investors pulled $4.5 billion from real estate funds in the past three months after a drop in commercial property shares slashed returns.

"Even though the subprime crisis is mainly hitting residential real estate, commercial is getting pretty hard hit on lower expectations for U.S. growth," said Brad Durham, managing director of Emerging Portfolio Fund Research.

Fund redemptions, combined with stock-market declines, reduced assets to $66 billion as of Aug. 8 from a peak of $82 billion three months earlier, according to Emerging Portfolio Fund Research, a fund market-analysis firm in Boston.

Square footage is square footage.