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Asian investor selloff led to Blackstone raising the gates

“The BREIT outflow bear case is playing out"

A photo illustration of Blackstone president Jon Gray (Getty, Blackstone)
A photo illustration of Blackstone president Jon Gray (Getty, Blackstone)

Blackstone’s giant real estate fund started limiting withdrawals last week, but the events that led to the decision were set in motion nearly six months ago.

Investors withdrew more than 2 percent of the Blackstone Real Estate Income Trust’s net assets in July, the Financial Times reported. The crossing of that threshold gave Blackstone the power to limit investor withdrawals, but, wary of alarming investors, it took no action at the time.

Instead, Blackstone’s top executives shored up BREIT with their own money. Chief executive Stephen Schwarzman and president Jon Gray added more than $100 million to their investments in the real estate investment trust.

Others’ withdrawals began in earnest during the spring and summer when Asian investors started pulling out as their own property markets declined. More than 70 percent of redemptions from BREIT this year have come from Asia.

Soon, the turmoil spread beyond the continent.

“The BREIT outflow bear case is playing out,” analyst Michael Brown told FT. “[We] expect it to remain an overhang on shares in the coming quarters.”

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Last week, BREIT tightened redemption requests for the remainder of the year after withdrawal demand exceeded 2 percent of the net asset value monthly limit and 5 percent of the quarterly threshold. Repurchase requests may continue to be limited or suspended in the first quarter.

BREIT had been an area of strength for Blackstone, responsible for acquisitions such as student housing company American Campus Communities and data center firm QTS Realty Trust. In the first three quarters of the year, BREIT recorded a 9.3 percent net return, while publicly traded REITs dropped 30 percent in value.

Last month, however, inflows were slowing and redemptions were on their way up. Rising interest rates limited the fund’s ability to make acquisitions and wealth advisers started warning clients against illiquid investments.

Last week, the trust struck a deal to sell its stake in two Las Vegas properties, the MGM Grand Las Vegas and Mandalay Bay, in an agreement valuing the properties at $5.5 billion. Closing the deal would bring Blackstone a $1.3 billion infusion.

Blackstone’s stock declined precipitously Thursday morning after the BREIT withdrawal limits were reported, but stabilized in the afternoon. The stock is down 37 percent year-to-date but up more than 154 percent over five years.

— Holden Walter-Warner

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AsiaBlackstone GroupREITS