Blackstone Gears Up for Deals As Fund Redeems Only 25% of Withdrawal Requests

Blackstone reassured BREIT investors this week that it has rounded up the liquidity to stanch hemorrhaging redemption requests—at the same time it pursues new acquisitions.

During a shareholders meeting on Tuesday, Nadeem Meghji, Blackstone’s head of Americas real estate, said BREIT has raised $14B in liquidity that would enable it to fulfill a rising tide of investor withdrawal requests from its fund while BREIT “goes on offense” hunting for new assets.

The $14B in liquidity includes a $4.5B infusion—made in two tranches last month—from the University of California.

“We have ample capital to play offense in a world where we think there’s going to be some interesting deployment opportunities,” Meghji declared, according to a report in Bloomberg.

Regarding investor withdrawals from the fund, Meghji said “we’re mindful of what we see as elevated repurchase activities and we need to work through that backlog over the next couple of months.”

However, on the same day Blackstone’s real estate chief promised that BREIT would get back in the ring and come out fighting, Reuters reported that the bleeding from redemption requests—what Meghji called a “backlog”—oozed out of the $69B fund throughout January, as it did in November and December, but at a pace that forced the firm to limit payments to just 25% of the requests.

As a non-traded REIT, BREIT has thresholds on how much money investors can take out of its fund in order to avoid forced selling of assets. In a Dec. 1 letter to investors, BREIT said redemption requests had exceeded its 2% of net asset value monthly limit and its 5% quarterly threshold.

Blackstone allowed investors to withdraw $1.3B in November, or 43% of the redemption requests it received; the firm limited December withdrawals to 0.3% of the fund’s net assets.

According to Reuters, BREIT also blocked the lion’s share of withdrawals in January: the company disclosed it paid out about $1.3B in fund withdrawals last month, representing just 25% of the approximately $5.3B worth of redemption requests it had received in January.

Regarding its new “offensive,” Meghji said BREIT is targeting publicly traded REITs, which he said are “trading at discounts.” BREIT also is lending to borrowers who need new property financing, taking advantage of higher rates, he said, according to Bloomberg’s report.

BREIT is talking to “motivated sellers” with attractive properties that need to raise capital for other purposes, Meghji said, adding that the fund expects to acquire more data centers.

In an earnings call last week, Blackstone President Jon Gray said the company expects redemption requests to “remain at an elevated level but [to] normalize over time as BREIT works through it backlog.”

Starwood (SREIT) and KKR’s KREST fund, both non-traded REITs, also have limited fund withdrawals as retail investors—wealthy individuals, primarily from overseas—have bombarded the funds with redemption requests.

Noting that newer funds don’t allow monthly withdrawals, Gray suggested in a recent interview with Financial Times that it might be time to rethink the structure of non-traded REITs that offer liquidity for illiquid CRE assets.

“I think there will be an evolution of private wealth products,” the Blackstone president told FT.