Blackstone has limited withdrawals from its $125 billion real estate investment trust after a surge in redemption requests, as investors clamor for cash and concerns over the long-term health of the commercial real estate market grow.
The private equity group approved just 43 percent of redemption requests in the Blackstone Real Estate Income Trust fund in November, according to a note it sent to investors on Thursday. Shares in Blackstone fell a full 8 percent.
The withdrawal limit underscores the risk wealthy individuals have taken by investing in Blackstone̵[ads1]7;s vast private real estate fund, which — after accounting for debt — owns $69 billion in net assets, spanning logistics facilities, apartment buildings, casinos and medical office parks.
About 70 percent of the redemption requests have come from Asia, according to people familiar with the matter, an outsized share considering non-US investors account for only about 20 percent of BREIT’s total assets.
A partner in the fund told the Financial Times that the recent poor performance of Asian markets and economies may have put pressure on investors, who now need cash to meet their obligations.
In the US, commercial real estate is under pressure from rising inflation and interest rates, according to a recent report from the National Association of Realtors. Globally, the mood in property has darkened and some high-profile investors have warned of a lack of finance in parts of the sector.
The increase in redemption requests comes as Blackstone announced the sale of its nearly 50 percent stake in the MGM Grand Las Vegas and Mandalay Bay Resort casinos in Las Vegas for $1.27 billion. Including debt, the deal valued the properties at more than $5 billion.
The proceeds from the sale, which was agreed at a premium to the book values of the properties, will help with liquidity for BREIT as it faces redemption requests – or be reinvested in faster-growing real estate assets, a person familiar with the matter said.
In October, BREIT received $1.8 billion in redemption requests, or about 2.7 percent of net asset value, and has already received redemption requests in November and December that exceed the quarterly limit.
It allowed investors to withdraw $1.3 billion in November, or just 43 percent of the redemption requests it received. Blackstone will allow investors to redeem just 0.3 percent of the fund’s net assets this month, it added in the notice.
Private asset managers have increasingly turned to private investors, arguing that high-net-worth investors should have the same ability as pension and sovereign wealth funds to diversify away from public markets. Part of the pitch that money managers make is that by giving up some liquidity rights, higher returns can be achieved.
The BREIT fund allows 2 percent of assets to be redeemed by customers each month, with a maximum of 5 percent allowed in a calendar quarter. The fund has returned over 9 per cent in the 9 months to the end of September, due to rising rents from the properties and dividend payments.
The increase in value stands in contrast to listed real estate investment funds, which have fallen sharply in value in line with falling stock markets.
In recent years, the fund has been one of the major sources of Blackstone’s growth in assets under management, along with a private credit fund called BCRED. In recent quarters, rising redemption requests from both funds have worried analysts as a signal to halt asset growth.
“Our business is built on performance, not fund flows, and performance is rock-solid,” Blackstone said in a statement sent to the Financial Times that highlighted the fund’s concentration in rental housing and logistics in fast-growing areas of the US and its predominantly fixed-income liabilities.