Redemptions are mounting at Blackstone’s large real estate arm, a sign of the times as commercial property investing takes a pounding. Disaffected property investors in Blackstone, the asset-manager-cum-private-equity firm, have reached its withdrawal limits, so many can’t cash out until January.
The Blackstone Real Estate Income Trust is a non-public REIT, meaning it is not exchange traded. Investor redemptions are capped at 2% of the fund’s net asset value per month or 5% per quarter. In a letter to investors, the firm explained that the property unit had almost reached its 5% quarterly limit through November, so no more withdrawals would occur until 2023.
The impact of the $69 billion REIT on its publicly traded parent company was painful. On the news, Blackstone stock plummeted 7%. This was on a day that the S&P 500 dipped by just a tiny amount, 0.09%. In terms of assets under management, the REIT is just 7.2% of the firm’s overall portfolio ($951 billion).
Commercial real estate has had a rocky road amid higher mortgage costs and the threat of a recession, which many think is coming next year. This plight is most clearly seen in publicly traded real estate investment trusts: The FTSE Nareit All REITs index is down 21% this year in total returns (price plus dividends), compared with the S&P 500’s 14% decline.
The area that Blackstone specializes in, residential, is the second-worst-off REIT sector, losing 27% in 2022. The worst is offices, off 32%. The Blackstone real estate vehicle has 55% of its portfolio in rental housing, with industrials at 23%. It is concentrated in the South and West, where it believes the best economic growth prospects lie.
Blackstone insists there is nothing wrong with its fundamentals. BREIT, as it is known, has a 95% occupancy rate and a 13% net operating income increase this year through September,
“Our business is built on performance, not fund flows, and performance is rock solid. BREIT has delivered extraordinary returns to investors since inception nearly six years ago,” the company said in a statement. Plus, it “is well positioned for the future given its concentration in rental housing and logistics in the Sunbelt and its long-term fixed rate debt structure.”