Blackstone REIT hits key milestone, lifts redemption limit

A major Blackstone Inc. property trust flashed the strongest signal yet that investor pressure for cash is abating.

The firm’s $60 billion real estate trust for wealthy individuals is finally letting customers draw money without any constraints for the month. Blackstone Real Estate Income Trust said Friday that redemption demands fell below a key threshold, meaning the trust could return as much as investors wanted to pull out. 

Since November 2022, BREIT has returned less money than investors requested each month, enforcing a key limit that helps it avoid forced selling. BREIT allows withdrawals of as much as 2% of the fund’s net asset value monthly or 5% each quarter.

Investors pulled back from real estate as high borrowing costs cut into property values. Now, the Federal Reserve has signaled its monetary tightening campaign is winding down. And investors have a greater sense of clarity about what properties might be worth in sale.

Investors sought to pull $961 million from BREIT in February, according to a shareholder letter. That’s 26% lower than a month earlier and down 82% from the peak in January 2023. The fund fulfilled all withdrawal requests in the month. It also returned more than $15 billion to shareholders during the 15 months it restricted redemptions.

The firm’s view is that BREIT has passed the test. 

“We believe it’s performed as designed and the structure has worked,” Nadeem Meghji, Blackstone’s co-head of real estate, said in an interview.

Meanwhile, Blackstone has directed cash into big deals, purchasing rental housing company Tricon Residential Inc. and snapping up a stake in a venture for Signature Bank property loans. Blackstone’s real estate transaction pipeline is now the largest in two years. 

TOUGH TEST

Investors pulled more cash from BREIT in late 2022, causing the trust to breach limits. A major chunk of those withdrawals came from Asia, where investors were forced to deal with the pain of margin calls.  

BREIT’s withdrawals sent a chill through the commercial-property market. It was a reversal from the heady years when BREIT expanded into a $70 billion behemoth. The trust’s big bets and constant gush of new cash had marked Blackstone’s dominance among financial advisers and individual investors. 

Wall Street raised more questions about how the trust’s slowdown would affect profits at the world’s largest alternative asset manager, weighing on the firm’s stock price. Inside Blackstone, BREIT has been a broad test of how the firm’s leaders handle stressful situations and manages investors. 

BREIT was a reminder of how tricky it is to package highly illiquid assets for individuals who want some assurance they can get cash back when they need it. It’s also been a high-profile lesson for retail investors that getting into the private markets means having to sacrifice the freedom to cash out at will.

RAISING MONEY

The firm has said BREIT — by following those limits — is doing what it was built to do.

“BREIT’s semi-liquid structure worked as intended — offering investors the potential for higher net returns in exchange for a measure of liquidity,” according to a statement.

Blackstone has also said that BREIT has virtually no exposure to the worst office properties and is concentrated in sectors such as data centers and student housing. 

Higher rates have still hurt the trust. A major BREIT share class posted a 0.5% loss in 2023, the lowest annual return since its 2017 debut. Still, those returns were better than rival funds from peers such as Starwood Capital Group, Brookfield Asset Management Ltd. and KKR & Co. 

BREIT’s performance has thinned out in recent years, with the trust returning 8.4% in all of 2022 and more than 30% in 2021. But, since inception, its annualized 11% net returns are more than twice public equivalents, according to Blackstone.

The giant money manager has continued to amass more money from wealthy people. At the start of this year, the firm raised $1.3 billion for its first private equity fund for rich individuals, achieving one of the biggest initial hauls for a fund of its kind.