Are the Big Real Estate Funds Faltering?

Blackstone is defending its decision to limit withdrawals from its $69 billion dollar real estate fund as investors become more cautious about what’s ahead. Fund managers say that redemption requests for the Blackstone Real Estate Income Trust, or BREIT, exceeded previously set limits, and that investors knew there would be only so much liquidity to pay existing investors. The only way to create more liquidity is to sell properties, and that doesn’t happen overnight.    Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.   Blackstone chief, Stephen Schwarzman, says the fund is performing well, and the high number of redemption requests are mostly from Asian investors who are facing financial stress in Asia. But there’s also growing concern about commercial real estate valuations here in the U.S. with weakening demand for office space and the impact of the Fed’s interest rate hikes on the economy. Apartment rent growth is also slowing down, despite strong housing demand, and multi-family properties account for the lion’s share of Blackstone’s fund.   The Blackstone website says that 55% of fund assets are multi-family properties with a high concentration of properties in the western half of the U.S. and the south to southeast states. Industrial properties make up about 23% of the fund. Other fund assets include net leasing, data centers, hospitality, self-storage, office space, and retail. The fund is up 9.3% year-to-date and 13% since its inception. (1)   Blackstone Sets Limits on Withdrawals   These new withdrawal limits come as investors pull money from all the REITS, including publicly-traded REITs. CNBC reports that publicly-traded REITs have gotten “slammed” this year. The $35 billion Vanguard Real Estate ETF is down 26% year-to-date. (2) The Wall Street Journal cites the FTSE NAREIT All Equity REITs INdex which tracks publicly-traded landlords. That index shows a 20% drop. It reports that office owners are seeing worse results. (3)   Although the privately-traded Blackstone is still “up” by more than 9% for the year, The Wall Street Journal reports that redemption requests for private REITs have escalated. The article said they are 12 times higher than they were in Q3 of last year. They hit $2.9 billion in Q2 of this year, and $3.7 billion in Q3 which they typically are less than a total of $1 billion. Although the Blackstone chief identified Asian investors as the ones who are yanking their funds, the Wall Street Journal reports that pension funds and university endowments are poised to do the same.   BREIT Shows Strong Fund Performance   Although Blackstone saw a doubling of requests last month, COO Jon Gray cited the fund’s strong performance in an interview with CNBC. Gray suggested that investors should be saying: “You guys have done an incredible job at deploying our capital in exactly the right geography, in exactly the right sectors with the right balance sheet.”   He says: “We set up the product with limitations on liquidity. We described it as semi-liquid because we knew at some point there would be a period of volatility, and we didn’t want to sell assets at the wrong time under pressure.”   Blackstone has a 5% cap on quarterly redemptions and a 2% cap for any given month. But Gray says: “We can sell if needed” which, he says, gives fund managers a lot of confidence. And despite the volatility we’re seeing in the housing market right now, Blackstone fund managers feel confident about their approach to real estate. The website boast all s that BREIT is the world’s largest commercial real estate owner… that has outpaced inflation drive by a high conviction, and thematic investment approach. The website says: “BREIT’s performance is more closely tied to real estate fundamentals than publicly traded REITs which are often subject to public market volatility.”    Rick of Too Many Redemption Requests    Although Blackstone is feeling some of the volatility, the Journal reports REITs in general are concerned about the number of redemption requests. It reports:  “If the number of investors asking for their money back keeps growing, it would likely become a problem for the real-estate market. That is because funds that need to raise cash to pay back their investors often and no other choice but to sell buildings.” And that could put pressure on apartment rents and office values over the long term.   That’s it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review!   To find out more about the single-family rental markets, go to newsforinvestors.com. You can join for free and get access to our market data and our list of real estate professionals. That includes our experienced investment counselors that can answer questions and help you get where you want to go with real estate.   Thanks for listening. I'm Kathy Fettke.   LInks:   1 - https://www.breit.com/why-breit/   2 - https://www.cnbc.com/2022/12/08/blackstone-chief-defends-real-estate-fund-amid-rush-for-withdrawals.html   3 - https://www.wsj.com/articles/investors-yank-money-from-commercial-property-funds-pressuring-real-estate-values-11670293325