The two largest nontraded real estate investment trusts have raised their guards to combat surging withdrawals from commercial property funds.
Investors have responded to rising interest rates by pulling money out of real estate funds en masse, the Wall Street Journal reported. Blackstone said last week it will tighten redemptions for its $69 billion fund, and Starwood Capital Group followed suit with its $14.6 billion fund.
Blackstone’s issues started raising alarms in the spring and summer when Asian investors began pulling out amid a declining regional property market, the Financial Times reported. Investors withdrew more than 2 percent of the trust’s net assets in July, crossing a threshold that spurred Blackstone’s top executives to infuse the fund with their own money: Chief executive Stephen Schwarzman and president Jon Gray added more than $100 million to their investments in the trust.
Private real estate funds in the United Kingdom, including ones managed by CBRE and BlackRock, are also limiting outflows, the Journal reported.
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Asian investor selloff led to Blackstone raising the gates
Non-traded REITs paid $3.7 billion in redemptions in the third quarter, according to Robert A. Stranger & Co. That marked the highest quarterly withdrawal in years and represented a 12-fold increase year-over-year.
U.S.-focused property funds raised $15.6 billion in the third quarter, according to Prequin. That figure is more than four times greater than the payouts of redemptions for non-traded REITs during the period, but still the lowest quarterly figure for raised funds since 2020.
Low interest rates were part of what prompted greater yields from funds than bonds prior to the Federal Reserve’s rate hikes, which started in the spring. Investors are training their eyes on less risky ventures like bonds, which are paying much higher returns than before and are more liquid, making them appear to be safer bets than the semi-liquid real estate funds.
— Holden Walter-Warner