A wave of withdrawal requests that hit Starwood Real Estate Income Trust, which is struggling with a resulting cash crunch, apparently caused backlash reactions by investors in other private REITs, including Blackstone’s BREIT.
“Repurchase requests for BREIT steadily declined from January 2023 until the last two weeks of May 2024 when another non-listed REIT amended its share repurchase program to significantly reduce liquidity to its shareholders,” Blackstone Real Estate Income Trust said in a June 3, 2024, letter to shareholders.
Blackstone’s letter said that it has fulfilled all repurchase requests for February 2024 through May 2024. It also noted that “repurchase requests for May 2024 are 70% below January 2023 levels.” Also, through portfolio positioning and valuation approaches, “BREIT has ~20% exposure to data centers and student housing, which has driven our outperformance over the last year.” Additionally, over the last two years, the company says it sold more than $20 billion in assets “at a premium” to boost liquidity.
Blackstone commented to GlobeSt.com, saying, “BREIT fulfilled 100% of repurchase requests in May. Its semi-liquid structure continues to work as designed and we have no plans to change our share repurchase program.”
“We cannot recommend being an aggressive seller of real estate assets today given what we believe to be a near-bottom market with limited transaction volumes, and our belief that the real estate markets will improve,” Barry Sternlicht, who leads the Starwood Capital Group, and Sean Harris, CEO Starwood’s REIT, said its letter to shareholders in late May.
Although Blackstone did not mention SREIT by name, people familiar with the situation said that the reactions to Starwood likely set off panicked investors. There are times that worried people will take the wrong steps, like buying at high points and selling low out of panic.
An open question is what the near future will bring to markets. Experts are still split on how long before things stabilize. The Federal Reserve recently noted that economic activity has expanded overall but CRE softened due to “supply concerns, tight credit conditions, and elevated borrowing costs.” Banks are seeing additional CRE exposure through credit lines to REITs. But some markets like industrial are seeing vacancy normalization and CRE loan delinquency growth is slowing.
Blackstone said in its letter that “new construction in our key sectors has significantly declined, supporting fundamentals in the medium-term.”
It continued, “BREIT’s portfolio has several engines for growth, including in-place rents that are well below current market rents, particularly in our warehouse portfolio, as well as a large and growing data center development pipeline driven by generational demand from A.I. and the cloud.”