Blackstone REIT Keeps Bleeding Despite Infusion of Liquidity

Blackstone limited investor withdrawals in February from its Blackstone Real Estate Income Trust (BREIT) fund to 35% of redemption requests, the fourth month in a row that BREIT has blocked the lion’s share of withdrawals because requests have far exceeded monthly limits.

The company said Wednesday that BREIT, now estimated to be worth $71B, fulfilled $1.4B out of a total of $3.9B in redemption requests, Reuters reported.

There was a glimmer of good news in the February withdrawals, which BREIT announced in a letter to investors: February’s $3.9B total in redemption requests was an improvement on January’s total of $5.3B. In January, just 25%, or about $1.3B, of the redemption requests were fulfilled.

Blackstone noted the improvement in a statement provided to GlobeSt.

“Repurchase requests in February declined by $1.4 billion or 26% from January, despite significant market volatility. Performance remains our primary focus: BREIT has delivered a 12.3% annualized net return since inception in 2017, outperforming publicly traded REITs by more than two times,” Blackstone said, in the statement.

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.

During a shareholders meeting last month, Blackstone reassured investors that it has rounded up the liquidity to staunch hemorrhaging redemption requests—which the BREIT keeps calling a “backlog” as the requests keep coming in.

Nadeem Meghji, Blackstone’s head of Americas real estate, said BREIT had raised $14B in liquidity that would enable it to fulfill the tide of investor withdrawal requests while the fund “goes on offense” hunting for new assets.

The $14B in liquidity includes a $4.5B infusion, made in two tranches in January, 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 during the shareholders meeting, according to a report in Bloomberg.

In an earnings call in January, 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 “tweak” 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. “This product has worked as designed, but can there be tweaks that improve things? Sure.”