Thousands of Canadian investors are currently unable to access billions of dollars they placed in private real estate funds. A sharp downturn in the housing market has forced many funds to restrict client withdrawals, a process known as 'gating,' leaving investors in limbo with no clear timeline for when their money will be released.
Key Takeaways
- Approximately C$30 billion, nearly 40% of the C$80 billion invested in private real estate funds, is now locked up.
- Funds began restricting withdrawals following a significant slump in Canada's housing market, triggered by interest rate hikes.
- The crisis highlights a fundamental mismatch between liquid investor expectations and illiquid real estate assets.
- Concerns are growing that these restrictions could impact future housing construction, potentially leading to long-term affordability issues.
Investors Trapped as Funds Gate Withdrawals
Andre El-Baba, a property manager from Vancouver, invested C$2 million with his father into the Romspen Mortgage Investment Fund in 2022. He believed it was a safe investment, offering solid returns and easy access to his principal. However, Romspen soon announced it was blocking withdrawals, a tactic that prevents funds from selling assets when many clients want to pull out their money.
El-Baba now receives only a 2% monthly income stream, far less than he anticipated. His account statements confirm his money is still there, but he cannot access it. This situation is not unique to him.
Impact on Investors
- C$30 billion (approximately $21.7 billion USD) is currently locked up across various private real estate funds.
- This represents nearly 40% of the total C$80 billion invested in such funds.
Many Canadians who put billions into these funds are facing similar restrictions. Fund managers are limiting cash distributions, client withdrawals, or both. Often, companies do not provide a timeline for when these restrictions will end.
The Roots of the Crisis: Market Downturn and Illiquidity
For decades, Canadian real estate was seen as a secure investment. Home prices consistently rose from 2002 to 2022. Private real estate funds, once exclusive to wealthy investors, started attracting everyday professionals like doctors, dentists, teachers, and retirees. These funds promised the stability of hard assets combined with the convenience of regular payouts and easy withdrawals.
This model worked well as long as the market kept growing. However, a series of 10 interest rate hikes in 2022 and 2023 changed everything. Condo values dropped significantly, sometimes by hundreds of dollars per square foot.
"Real estate is not the holy grail that people thought it was," said Darren Sissons, a partner at Campbell, Lee & Ross Investment Management. "History has proven repeatedly that a sure winner doesn’t last forever."
Fundamental Mismatch
The core issue lies in the mismatch between liquid investor expectations and illiquid assets. Investors expected to easily redeem their money, but the funds held assets like towers, warehouses, and construction loans, which are not easy to sell quickly.
As housing prices fell and new developments slowed, funds could no longer generate enough returns to cover the money clients wanted to withdraw. More money was leaving than coming in, forcing managers to gate redemptions.
Major Funds Implement Restrictions
Several prominent funds have implemented withdrawal restrictions. Romspen Investment Corp. was among the first, halting redemptions in 2022 and maintaining those restrictions. Hazelview Investments has suspended redemptions at least twice in its C$1.3 billion Four Quadrant Global Real Estate Fund since 2023, as withdrawal requests neared 30% of its assets.
Trez Capital froze withdrawals across five funds in August, totaling C$2.8 billion in commercial real estate loans, though it continues monthly distributions. The company stated it aims to reopen funds in 2026 without giving a specific date.
Other funds that have limited or halted redemptions include Centurion Apartment REIT, a C$7.9 billion vehicle, and KingSett Capital’s Canadian Real Estate Income Fund, which recently resumed monthly distributions after a year-long suspension.
Manager Strategies and Investor Confidence
Temporarily closing the gates allows fund managers to conserve cash and adjust their strategies. However, this action can severely damage investor confidence.
Jamie Grundman, head of multi-family office Irager Investments Inc., noted, "As soon as you gate, investors stop believing you. Once you cross that line, people know you’re in a crisis, and they question everything else you tell them."
Some funds are reportedly borrowing against their portfolios to maintain payouts, a practice warned against by Professor Jim Clayton of York University’s Schulich School of Business as a "house of cards" that merely delays the inevitable reckoning.
Broader Economic Implications and Future Outlook
The Canadian real estate market remains in a slump. Prices have fallen 18% from their peak. New development pipelines in major cities like Toronto and Vancouver are at their lowest levels since the 2000s. The Canada Mortgage and Housing Corp. is monitoring the gating trend but has not commented on its potential impact on future construction.
Population growth, a key driver for housing demand, has also slowed. Statistics Canada reported a 0.2% population drop in the third quarter of 2025, the first such decline outside of the pandemic since the 1940s. Fewer new renters and buyers mean less demand for housing units.
- 18%: Decline in Canadian home prices from their peak.
- 22%: Drop in commercial real estate investment year-over-year in the first half of 2025.
Weak demand makes it harder to secure financing for real estate development. Commercial real estate investment in Canada dropped 22% year-over-year in the first half of 2025, according to Altus Group. Diana Petramala, a senior economist, warns that a credit crunch now could lead to a housing affordability crisis in five to ten years when demand eventually recovers.
"The long-term impact is that we may never return to the same levels of supply," Petramala stated. "That means it will be much harder for families to get access to housing down the road, once the economy recovers."
The current situation poses significant challenges for individual investors and could have lasting effects on Canada's housing supply and overall economic stability.
