Blackstone clients asked to pull $4.5bn from a closely followed real estate fund in March, even as the firm’s executives were promoting investment opportunities in the sector that they said would arise from US economic turbulence.
Withdrawal requests at the $70bn fund, called Blackstone Real Estate Income Trust, or Breit, rose 15 per cent in March after the collapse of Silicon Valley Bank, to $4.5bn. It was the fifth straight month that the firm has limited redemptions.
The redemptions signal that investor concern remained high even after Blackstone president Jonathan Gray and other top executives convened more than 200 investors on March 8 and March 9 to showcase forecasts of new investment opportunities from the growing financial upheaval. SVB was taken over by regulators on March 10 after announcing big losses on securities sales and a failed equity raise.
At the Spring Place private members club in Manhattan, Blackstone said the unfolding financial crisis could bolster Breit’s earnings because it would constrain bank financing for new real estate construction, crimping supply and providing upward pressure on rents at its properties, according to four people who attended.
Blackstone executives told the group that a big crop of new apartments coming into the market will only crimp profits for a short time. Regional banks, the major financier of US apartments, will cut back on new lending commitments as they feel pressure from deposit outflows and rising interest rates, Blackstone predicted.
“There will be less of an issue in terms of pricing,” especially in multifamily apartments, said attendee Larry Swedroe, a director of research at Buckingham Strategic Wealth.
Nadeem Meghji, head of Blackstone’s real estate business in the Americas, said Breit was going to be “playing offence” using its $12bn in liquid assets, while competitors scale back or sell, the attendees said. He added that the firm expects to announce large deals to build data centres for technology giants aiming to compete in artificial intelligence products.
The pitch failed to stem a tide of outflows. Investors asked to redeem $4.5bn from Breit in March, up from the $3.9bn investors sought to withdraw in February. Blackstone paid out just $666mn of those requests because of the withdrawal cap.
Blackstone launched Breit in 2017 to offer real estate investments to wealthy individuals. The fund’s terms allow clients to redeem 2 per cent of their net assets each month, with a maximum of 5 per cent each calendar quarter.
“We are proud that Breit has generated strong performance across market cycles,” Blackstone said in a notice about the March withdrawal curbs. Redemption requests were 16 per cent below a January high, it noted.
At the Breit event, Blackstone said the restrictions protect investors against a fire sale of property holdings. “They told the same story they have been telling for a long time,” Swedroe said. “It is a feature of the fund that there is limited liquidity.”
Blackstone has paid out $5bn to redeeming investors since November 30. Withdrawals have been highest in Asia, people briefed on the flows told the Financial Times. Non-US investors have roughly halved their exposure to Breit over the past year.
Many investors remain confident in the fund. “This is a way to seek to increase your cash flows longer term and own high-quality assets,” said Patrick Dwyer, a managing director at NewEdge Wealth, a large Breit investor who attended the event.