During market downturns, access to capital dries up and buyers vanish. The liquidity risk is that property owners must place a discount on their property's value to sell it during market downturns.
Mitigants
Have adequate cash reserves and avoid excess leverage, so that the holding corporation is not forced to sell during a cyclical downturn when buyers vanish, and the only way to liquidate the asset is at a fire-sale price.
Real Estate Investment Liquidity Risk
Blog by Andrew Reid | February 23rd, 2021