Bluerock real estate fund debuts on NYSE and slides sharply

After months of warning investors it could open trading on the NYSE at a discount to its net asset value, the $4.3 billion Bluerock Private Real Estate Fund did just that, closing its first day of trading at $14.70 per share, according to NYSE.com.

That's a decline of close to 40% from its last published net asset value – NAV - on Friday of $24.36.

Formally a nontraded Interval fund with limited ability to buy shares from investors, the Bluerock Private Real Estate Fund has been repositioning itself since April to list on the Big Board as a closed-end fund.

As it moved towards its goal, the fund, formerly dubbed the Bluerock Total Income+ Real Estate Fund, periodically warned investors it could trade at a discount to its NAV, particularly as investors were looking to sell their shares back to the company.

The fund now trades with the ticker symbol BPRE.

The Bluerock Total Income+ “launched in 2012 as an interval fund: a closed-end structure with limited, scheduled liquidity,” noted Leyla Kunimoto, a write for Accredited Investor Insights, in a post last week on LinkedIn. “It’s effectively a fund-of-funds (and fairly concentrated): it invests in other managers’ funds.”

“For roughly a decade it delivered strong returns and saw steady inflows of new capital,” Kunimoto wrote. “But in 2022 returns went negative. This being a semi-liquid fund, investors ran for the exits, and a redemption queue quickly formed.”

“After nine consecutive quarters of negative returns, 22% of the fund tendered their shares for repurchase in June, yet the fund only repurchased about a quarter of those requests,” she wrote.

Financial advisors often sell clients interval real estate funds or nontraded real estate investment trusts in order to diversify portfolios and deliver steady yields. Real estate funds of all stripes, however, were hit by rising interest rates since the start of 2023. Higher interest rates hurt real estate investors because the cost of capital rises.

The alternative investment industry has a history nontraded, illiquid funds trading below estimated NAVs once they become public traded companies.

Just last month, the FS Specialty Lending Fund, with $1.9 billion in assets, published on November 4 an NAV of $18.60 per share. After months of preparation, the company began trading 10 days later on the NYSE at $14 per share, a discount to NAV of 24.7%.

Over the summer, the company said it was expecting the fund to trade at a “substantial discount” to its NAV. 

“In consideration of pent-up liquidity demand from existing shareholders, we anticipate that the fund will likely trade at an initial discount to its NAV upon listing,” the company said last week in a filing with the Securities and Exchange Commission.