Blackstone limits withdrawals at $125bn property fund

Fund has one Irish asset, an office block at Spencer Place in Dublin’s docklands

Blackstone has limited withdrawals from its $125 billion (€118 billion) real estate investment fund following a surge in redemption requests, as investors clamour to get their hands on cash and concerns grow about the long-term health of the commercial property market.

The private equity group approved only 43 per cent of redemption requests in its Blackstone Real Estate Income Trust fund in November, according to a notice it sent to investors on Thursday. Shares in Blackstone fell as much as 8 per cent.

According to a prospectus for the trust, it has one Irish asset in the fund. On August 18th this year, the company, through a joint venture with certain affiliates, acquired the property known as Spencer Place in Dublin for about €552 million, the document states. The company owns 75 per cent of the joint venture.

Called “Adare office”, the Irish building comprises 517,000 sq ft of space and has an occupancy rate of 95 per cent. It includes Salesforce’s European headquarters.

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The withdrawal limit underscores the risks wealthy individuals have taken by investing in Blackstone’s mammoth 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 per cent of 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 per cent of Breit’s total assets.

One partner in the fund told the Financial Times that the poor recent performance of Asian markets and economies may have put pressure on investors, who now need cash to meet their obligations.

In the US, commercial property 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 surge in redemption requests come as Blackstone announced the sale of its near 50 per cent interest 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.

Proceeds from the sale, which was agreed at a premium to the carrying values of the properties, will help with liquidity for Breit as it meets redemption requests – or be reinvested in faster-growing property assets, said a person familiar with the matter.

In October, Breit received $1.8 billion in redemption requests, or about 2.7 per cent of its net asset value, and has received redemption requests in November and December exceeding the quarterly limit.

It allowed investors to withdraw $1.3 billion in November, or just 43 per cent of the redemption requests it received. Blackstone would allow investors to redeem 0.3 per cent of the fund’s net assets this month, it added in the notice.

Private capital managers have increasingly turned to retail investors, arguing wealthy investors should have the same ability as pension and sovereign wealth funds to diversify away from public markets. Part of the pitch money managers make is that, by giving up some liquidity rights, higher returns can be achieved.

The Breit fund allows for 2 per cent of assets to be redeemed by clients each month, with a maximum of 5 per cent allowed in a calendar quarter. The fund has retuned more than 9 per cent in the nine months to the end of September because of rising rents from the properties and dividend payments.

Its increase in value is in contrast to publicly traded real estate investment trusts, which have declined sharply in value in line with falling stock markets.

In recent years, the fund has been one of the big sources of Blackstone’s growth in assets under management, alongside a private credit fund called BCRED. In recent quarters, rising redemption requests from both funds have worried analysts as a signal of stalling asset growth.

“Our business is built on performance, not fund flows, and performance is rock solid,” said Blackstone in a statement sent to the Financial Times that emphasised the fund’s concentration in rental housing and logistics in fast-growing areas of the US and its predominantly fixed-rate liabilities. – Copyright The Financial Times Limited 2022