Blackstone preps nontraded real estate fund for the fee-only crowd

Fund comes with no sales load but 12(b)-1 fee, performance fee and expense ratio

By Jason Kephart

Dec 30, 2013 @ 12:04 pm (Updated 12:46 pm) EST

nontraded real estate, blackstone, mutual fund, fee-only

Private-equity powerhouse The Blackstone Group Inc. is raising funds for a new nontraded real estate mutual fund designed to appeal to fee-only financial advisers.

Blackstone is raising money for the Blackstone Real Estate Income Fund II, which will offer shares that are not subject to a sales load, according to a filing with the Securities and Exchange Commission.

Sales loads on nontraded real estate investment trusts, which are typically more than 10%, have made the products popular in the independent broker-dealer community, but have also been a major point of criticism from financial adviser channels that are more focused on fees, such as independent registered investment advisers.

Instead of a sales load, the Blackstone Real Estate Income Fund II will have an ongoing 12(b)-1 fee of 25 basis points and also have a 1.5% expense ratio and 15% performance fee, similar to a hedge fund.

The fund will invest in the usual smorgasbord of real estate investments, such as commercial mortgage-backed securities, private real estate debt and loans.

Blackstone expects to complete its fundraising by March 31, according to the filing.

Peter Rose, a spokesman for the firm, declined to comment while the fund is in a quiet period.

The Blackstone fund is the latest sign of innovation in the booming nontraded real estate fund space.

In January, Bank of America Merrill Lynch became the first wirehouse to sell a nontraded REIT through its advisers. The Jones Lang LaSalle Income Property Trust that Merrill chose comes with a 2.5% sales load.

Nontraded real estate investment trusts recorded a record $20 billion in sales in 2013, up from $10.3 billion in 2012, and industry watchers expect another strong year of growth in 2014.

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