BREIT, Blackstone’s $62 billion private real estate investment trust, once the nation’s most aggressive purchaser of commercial real estate, had its biggest redemption year ever.
The fund, the $1 trillion asset manager’s single largest real estate investment vehicle and largest private REIT, could return approximately $3.2 billion to investors in the final three months of 2023. According to data from research firm Stanger, the private REIT industry is
The outflow caps a turbulent year for the fund, one that symbolizes a reversal in fortunes for the once booming private REIT business.
In the first nine months of 2023, investors outflowed BREITs worth $9.8 billion, which is more than the $9.6 billion they lost in all of 2022, Stanger said. About $13 billion is likely to be lost in 2023, said Kevin Gannon, Stanger’s chairman and CEO. Withdrawals would certainly have been higher had Blackstone not imposed caps restricting investors from cashing out more than 2% of the fund’s net asset value in a month or 5% in a quarter.
Through November, the private REIT industry has seen a total of about $17.4 billion worth of redemptions, compared to about $12 billion for all of 2022.
Gannon said investor concerns about declining commercial real estate values continue to drive private REIT outflows.
Gannon said that if private REITs are priced “right, people will jump in,” adding, “So the market will say, ‘Hey, you know what? I’m not digging into pricing.’ “I’m doing it,” he added.
In a letter to shareholders dated Jan. 2, Blackstone said December redemption claims decreased to $1.1 billion, a 41% decrease from November’s redemption claims of $1.8 billion, and It said it was 80% below its peak.
“We are pleased to see the continued monthly decline in repurchase requests in December,” a Blackstone spokesperson said in an email.
The biggest buyer of real estate has ceased operations.
Private REITs led by BREIT have been among the busiest commercial real estate acquirers in recent years, with tens of billions of dollars worth of warehouses, multifamily housing, student housing, data centers, self-storage facilities, and other real estate assets. is empty.
In addition to Blackstone, other major asset management companies such as Starwood, KKR, Apollo, Ares, and Brookfield are also joining forces to capitalize on the increasing number of daily investors eager to buy into the fast-growing real estate segment. We are establishing similar instruments in the industry. Controlled by Wall Street elites.
However, starting in March 2022, the Federal Reserve began raising interest rates in a series of hikes, causing commercial real estate values to fall and sales activity to decline. Investors fearing the value of private REITs will fall are now cashing out to avoid losses.
These events effectively halted the industry’s impressive growth.
In October, BREIT reported that real estate acquisitions through the first three quarters of 2023 were just $37 million, compared to a staggering $30 billion in the same period in 2022. The $11 billion net worth industry disclosed no meaningful acquisitions in the first three quarters of 2023, compared to $5 billion in the same period in 2022.
“They’ve been very aggressive,” said James Miron, president of U.S. fixed income and structured finance at CBRE, of private REIT buyers in recent years, showing resilience in the face of financial market headwinds. He pointed out many of the target asset classes in the real estate market.
A Blackstone spokesperson pointed out that starting in 2022, BREIT has sold $16 billion of real estate assets to NAV at a premium price.
Milon said the spate of redemptions has helped dampen purchasing activity in private REITs, but the sector’s growth has also come as buyers and sellers across the market struggle to adjust property prices amid rising interest rates. It said the decline in acquisition activity signals a further slowdown in commercial real estate. Fee.
“What happened in 2023 was very little trading activity, either for private REITs or public REITs or private or institutional capital,” Miron said. “Nobody was trading.”
Nationwide, nearly $82 billion in commercial real estate sales transactions took place in the third quarter, down 54% from the $177.9 billion in transactions in the third quarter of 2022, according to CBRE data. The period will run from the beginning of the fourth quarter of 2022 to the end of the third quarter of 2023, CBRE reported. This was 56.9% less than the $927.7 billion in transactions over the previous 12 months.
Private REIT evaluation
Part of the private REIT industry’s problems stem from how participants value their own stocks.
Unlike publicly traded REITs, where investor demand determines the stock price, most private REITs use monthly portfolio valuations as a benchmark for the stock price. Experts say the real estate industry appears to have been slower to respond to the decline in commercial property prices than the broader real estate market.
Gannon said private REITs saw their asset values decline by “on average less than 5%” in 2023, while public REITs saw a consensus decline of 15%.
MSCI’s CPPI National All-Property Index, which benchmarks commercial real estate values across property types, fell 8% year over year through November 2023.
BREIT’s net asset value increased by 3.7% in 2022, but declined by 3.4% through November 2023, Stanger said.
Gannon said investors are not “optimistic about the net asset value” of private REITs.
“So I’m not going to give you a dime,” Gannon said, expressing investors’ views on the private REIT sector. “By the way, I’m going to take some of the money I have here off the table.”
A former private REIT manager, who spoke on condition of anonymity because he was not authorized to discuss the industry, said that large asset managers such as Morgan Stanley and UBS, which were important funnels of private REIT investors’ funds, , said that the allocation may be reduced after the investment trust ends. Recent happenings.
The person said, for example, that he spoke with one investment manager that “had $1 billion in BREIT exposure,” but recently “reduced it to $300 million.”
“They thought, ‘What if our values get hurt? Let’s get rid of that,'” the former executive said. “That’s the dynamic.”
Morgan Stanley declined to comment. UBS did not respond to a request for comment.
Blackstone says rental growth in BREIT’s real estate portfolio is offsetting declines in property values due to rising interest rates, and that its holdings are supported by vibrant property types in strong markets such as the Sunbelt region. insisted. By the third quarter of 2023, the company reported a 6% improvement in cash flow compared to the same period in 2022.
Expected rate cuts could spur economic recovery
The private REIT industry has been around for decades, but has been tarnished by a reputation for mediocre management and high fees.
Blackstone aimed to revitalize the sector by offering ordinary investors the same vaunted management it has used to raise hundreds of billions of dollars for its funds from wealthy individuals and institutional clients. The company launched BREIT in 2017 to focus on segments of the real estate market that have proven to be highly profitable, such as warehouses, apartments, and data centers, and has amassed more than $100 billion in real estate assets, including debt, in just a few years. I have accumulated a portfolio.
Some see the fund’s and the industry’s overall woes as temporary.
The Federal Reserve has indicated it intends to lower benchmark interest rates in 2024, potentially easing downward pressure on commercial real estate prices. For example, futures markets are pricing in future rate cuts of as much as 125 basis points, which is equivalent to a 1.25% decline in the Fed rate.
CBRE’s Miron said he expects “everyone will start to be more aggressive in bidding” on real estate deals involving private REITs.
“Compared to 2023, 2024 is going to be a better year, although it’s not by any stretch of the imagination,” Miron said.
There are signs that the snow is melting. In December, BREIT and another corporate fund, Blackstone Real Estate Debt Strategies, partnered with a group of other investors to acquire stakes in a portfolio of nearly $17 billion in senior mortgages that had been foreclosed on by the Federal Deposit Insurance Corporation. Got 20%. from his Signature Bank, a failed financial institution.
“We look forward to working with our borrowers and partners to realize the full potential of these assets,” Jonathan Pollack, global head of BREDS, said in a statement.