Investors trying to reduce their exposure to a declining property market are moving to pull their money out of commercial real estate funds at a faster clip than they have in years in what could be shaping up as a big problem for the industry.

Nontraded REITs, like those run by Blackstone and Starwood that have capped investor redemptions in the past week, paid out $3.7B in withdrawals in the third quarter, 12 times more than the same period in 2021, according to Robert A. Stanger & Co. data reported by The Wall Street Journal.

Withdrawals were at $2.9B in Q2 after not hitting the $1B threshold in any quarter going back to 2018. If the trend continues, these funds may be forced to sell buildings to meet investors' demands, the WSJ reported.

“That puts pressure on prices overall,” Nat Kellogg, president and director of manager search at investment adviser Marquette Associates, told the WSJ.

He added an increasing number of the pension funds and university endowments his company advises are considering withdrawing money from real estate funds.

Blackstone's nontraded REIT, Blackstone Real Estate Income Trust Inc., started limiting redemption requests in November and December after withdrawals exceeded 2% of the fund's net asset value, which is the monthly limit, and more than the 5% threshold that's allowed per quarter. The halt on redemptions was put in place to prevent "a liquidity mismatch," it told investors last week.

BREIT's monthly limit was first hit back in July after Asian investors, grappling with the Chinese property crisis, pulled money out in droves, but instead of moving to stop outflows then, Blackstone CEO Stephen Schwarzman and President Jon Gray put $100M of their own equity into the fund, the Financial Times reports.

Starwood Real Estate Income Trust has made similar moves and started to decline request form withdrawals. Redemption requests last month hit 3.2% of SREIT's net asset value, so it refused to repurchase shares of some investors.

BlackRock and CBRE Investment Management-owned funds have also been taking steps to stop investors from pulling out their funds.

While the nontraded REITs are able to cap withdrawals on a monthly or quarterly basis, if the outflows continue, it could force them to sell assets to fulfill investor redemptions.

The string of withdrawals comes as the outlook for real estate has become decidedly less rosy. Interest rates, frozen debt markets and uncertainty around remote work — and what it will do to the long-term outlook for rents and the corresponding office values — all hang over the market.