(Bloomberg) -- Investors in Chile are bracing for a rare flood of commercial buildings to hit the market as two of the nation’s largest real estate investment funds near liquidation.

Most Read from Bloomberg

• Saudis Warned G-7 Over Russia Seizures With Debt Sale Threat

• Saudi Prince’s Trillion-Dollar Makeover Faces Funding Cutbacks

• Modi’s Embrace of Putin Irks Biden Team Pushing Support for Kyiv

• Archegos’ Bill Hwang Convicted of Fraud, Market Manipulation

• Stocks See Big Rotation as Yields Sink on Fed Bets: Markets Wrap

Real estate portfolios worth $552 million held in funds managed by heavyweights Toesca SA and Banchile Inversiones could soon go on sale due to recent shareholder votes. That’s raising fears of a looming vicious cycle in Chile. Low prices prompted investors to give up and liquidate real estate investments, but the upcoming sudden supply of buildings could push prices down even further.

“It will indeed become more difficult to sell assets if there is an abundance of assets for sale,” said Augusto Rodriguez, head of real estate at Toesca, where investors have confirmed the liquidation of one of its real estate funds with a portfolio worth $215 million.

However the company believes “very much in the quality of our assets and, for this reason, we are convinced that there is and will be a lot of interest in them,” Rodriguez said.

Alongside Toesca, Banchile could face liquidation in December after a group of shareholders voted to withdraw from a real estate fund with assets worth $337 million, rejecting the company’s proposed extension. Banchile, which declined to comment for this story, could still propose another extension with new terms to try to avoid liquidation.

Put together, the liquidations may mean a rare test for Chile’s ice-cold real estate market. The nation has seen few commercial properties — including office buildings, retail stores and warehouses — go up for sale in recent years due to the worldwide impact of high interest rates.

The forced sales could prove that demand is as bad as some observers think, or they could represent a great opportunity for the rare investor that’s also flush with cash. Either way, liquidating the funds will take years.

“The speed at which properties can be sold could slow down if demand does not go hand in hand with higher supply,” Juan Enrique Gonzalez, a partner at real estate firm Valor Raiz, said by email. “That is the biggest risk given that the majority of these assets are high-value and that is by itself a small market.”

The liquidation news that started at Toesca has also shaken other real estate funds. Independencia SA, another asset manager, was readying a new bond sale for its real estate fund when news of Toesca’s liquidation broke in May. That forced it to delay the sale due to what it now describes as “alarmist” news.

“It generated a lot of uncertainty and forced us to suspend the placement to explain the real situation to the market,” Independencia Chief Executive Officer Juan Pablo Grez said in an interview. Its fund, which manages properties valued at $1.2 billion, isn’t facing a vote anytime soon that could see it go into liquidation.

The heart of the problem for local fund managers is that elevated rates, long waits to acquire permits and high construction costs can create obstacles to keep funds afloat, according to Nicolás Gellona, a real estate asset manager at Larrain Vial SpA.

One way to hedge those factors is to go international. Chilean fund managers are increasingly looking to international markets, including in the US, Peru, Mexico and Spain. The proportion of real estate assets that Larrain Vial manages outside Chile jumped to 40% this year, compared to 10% in 2021, Gellona said by email.

Fund managers are, however, seeing some pockets of recovery among assets affected since the pandemic, while other areas haven’t been affected at all. Distribution centers used to fulfill e-commerce orders make up more than half of Independencia’s real estate portfolio and Grez said they haven’t seen demand drop.

The CEO estimates that for Independencia’s fund, and other funds with maturity dates in the next four or more years, the market situation will be more normal and real estate will see more liquidity. “Our team is creative enough to do many things,” Grez said. “We have many ideas in mind to propose as an alternative to the complete dissolution of the fund.”

Most Read from Bloomberg Businessweek

• Looser Visa Rules for Indian Travelers Stoke a Tourism Boom

• Ukraine Is Fighting Russia With Toy Drones and Duct-Taped Bombs

• How Rivian Became the Anti-Tesla

• At SpaceX, Elon Musk’s Own Brand of Cancel Culture Is Thriving

• How Digital Money Really Works

©2024 Bloomberg L.P.