Private equity giant The Blackstone Group is considering launching a nontraded real estate investment trust business that would both create and manage nontraded REITs for brokers and advisers to sell as well as market and wholesale those investments.
The two Blackstone executives leading the effort are Brendan Boyle, senior managing director, private wealth management distribution, and Joe Lohrer, managing director, private wealth management distribution, according to an industry source with knowledge of Blackstone's plans who asked not to be named.
A second source, who also asked not to be named, said he too was aware that Blackstone was considering getting into the nontraded REIT business.
A Blackstone nontraded REIT could be sold through both independent broker-dealers, which currently sell the overwhelming majority of the products, as well as the large wirehouses, which do not traditionally sell nontraded REITs but sell Blackstone funds to high-net-worth investors, according to the first source.
Blackstone has already had success in the illiquid alternative investment space. GSO/Blackstone is the sub-adviser to nontraded business development companies managed by Franklin Square Capital Partners, which opened in 2007 and has so far raised $17 billion from investors in a series of funds.
With $336 billion in assets, Blackstone is one of the financial services industry's most noted firms and works with leading institutions and pension funds. It was not clear whether Blackstone has yet registered a nontraded REIT with the Securities and Exchange Commission. It is searching for leadership of its wholesaling and marketing effort, the source said.
“They are a force to be reckoned with if they get into this business,” the first source said.
A Blackstone spokeswoman, Paula Chirhart, declined to comment.
In the past, large Wall Street financial institutions routinely turned their backs on selling illiquid investment products through independent broker-dealers such as LPL Financial and Commonwealth Financial Network. Client account sizes at independent firms have historically not been as large as those at wirehouses.
Instead, Wall Street firms like Blackstone focused on marketing their deals to the wealthiest clients of the large wirehouses, which house tens of thousands of brokers.
Since the credit crisis, Wall Street's distance from the independent brokerage business has shrunk. With a greater amount of retirement assets in the hands of individual investors and the brokers and financial advisers they work with instead of pension plans, an increasing number of major Wall Street firms have looked for new business through independent broker-dealers and registered investment advisers.
Just last year, private equity giant Apollo Global Management kicked the tires of Realty Capital Securities, the former leading wholesaler of nontraded REITs, but ultimately pulled out of a deal days after the Massachusetts Securities Division charged RCS with proxy fraud.
When RCS then said it was closing its doors, renowned bond shop Cantor Fitzgerald & Co. muscled its way into the nontraded REIT business and hired more than two dozen former RCS wholesalers to lead the effort.