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(Bloomberg)—Blackstone Inc.’s $70 billion real estate trust for wealthy individuals faced higher withdrawal requests in March and restricted redemptions for a fifth straight month.
Shareholders asked to redeem $4.5 billion last month from Blackstone Real Estate Income Trust “in a month of tremendous market volatility and broad-based financial stress,” the company said Monday in a letter. BREIT allowed about $666 million to be withdrawn, or about 15% of what was requested.
Investors asked to pull more than in February, when they tried getting $3.9 billion out. A Blackstone spokesperson pointed to the fund’s performance as a positive and said March redemptions were 16% below the January peak, when investors sought to withdraw more than $5 billion.
The firm restricts withdrawals to about 5% a quarter. BREIT had already hit 2% monthly limits in January and February, leaving investors with a narrower path out in March.
Blackstone stock dropped 2.1% to $86 at 10:05 a.m. in New York Monday. The shares had climbed about 18% this year through Friday’s close.
Blackstone built BREIT into a massive player in the real estate industry, acquiring properties from student housing to apartment buildings and warehouses. Late last year, BREIT confronted a spike in redemptions.
The real estate industry has come under pressure as investors seek to reduce their exposure, which had become proportionally larger as prices of other assets fell. Property owners are also facing much higher borrowing costs. That’s led to more defaults in certain troubled areas such as offices.
Blackstone has argued that its portfolio is focused on better spots in the industry, such as Sun Belt markets with higher growth. BREIT is also heavily concentrated in rental housing and warehouses.
Limiting Withdrawals
The trust had made it clear it reserved the right to limit redemptions.
“This structure was designed to both prevent a liquidity mismatch and maximize long-term shareholder value, and is working as planned,” the letter to investors said. “In fact, BREIT has paid out nearly $5 billion to redeeming shareholders since Nov. 30.”
The level of withdrawal requests is likely to remain high because of growing investor concern around real estate trends broadly, according to a note Monday from Keefe, Bruyette & Woods analysts. Investors finding more attractive sectors to deploy money could also keep redemption requests elevated, the analysts wrote.
BREIT’s act of imposing those withdrawal limits late last year sent shockwaves through financial markets, which faced more turmoil in March as banks collapsed. The backlog is complicating private equity’s push to reach investors beyond large pensions and endowments.
Blackstone has said curbs on redemptions leave private equity firms in a stronger position than banks to withstand sudden shifts of investor sentiment.
“We don’t take deposits. Our structures are meant so that we are never forced to sell assets,” Blackstone’s global head of private wealth solutions Joan Solotar said in the wake of high profile bank failures recently.
BREIT’s lowest-fee share class had a return of 0.7% in February, its biggest monthly advance in six months, as rising rents offset a decline in property valuations. That share class posted a 5.7% return in the trailing 12 months, following an 8.4% gain in 2022.
A Bloomberg index of public real estate investment trusts fell about 1.8% in March, after reinvested dividends. It gained 1.7% in the first quarter.
© 2023 Bloomberg L.P.
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