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Blackstone Limits Fund Withdrawals After A Surge of Investors Seek To Cash Out

Derek Wolfe

Updated: December 6, 2022

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Editor’s Note:

EDITOR'S NOTE: Blackstone, one of the largest investment firms in the world, is seeing massive withdrawals from its real estate fund. Think of it like a bank run, but one concentrated on a specific financial instrument. Housing was the first sector to enter a recession. Home prices are plunging as demand continues to dry up, leaving a desert where liquidity once prevailed. Are we to see a similar exodus in other sectors of the economy? Most Wall Street pundits, save a few, don’t seem to be expecting it at all. And when the crowd finally smells smoke and heads en masse for the exits, that’s typically when the panic begins and chaos reigns.  

Blackstone is limiting withdrawals from its $69B real estate investment fund after a surge of redemption requests from investors seeking to cash out breached the REIT’s quarterly repurchase limit.

The stampede of investors seeking to liquefy their assets at one of the largest global private equity investment funds is an ominous sign that economic headwinds are building in commercial property markets.

As a nontraded REIT, Blackstone Real Estate Income Trust has thresholds on how much money investors can take out to avoid forced selling. In a letter to investors on Thursday, BREIT said redemption requests have exceeded the 2% of the net asset value monthly limit and the 5% quarterly threshold.

BREIT said it received $1.8B in redemption requests, or about 2.7% of its net asset value, and has received redemption requests in November and December exceeding the quarterly limit.

Blackstone allowed investors to withdraw $1.3bn in November, or just 43% of the redemption requests it received. Blackstone would allow investors to redeem just 0.3% of the fund’s net assets this month, the letter said.

“If BREIT receives elevated repurchase requests in the first quarter of 2023, BREIT intends to fulfill repurchases at the 2% of NAV monthly limit, subject to the 5% of NAV quarterly limit,” the letter said.

The announcement of the limitation on withdrawals sent Blackstone’s stock value plunging by 10% on Thursday.

According to a report in the Financial Times, about 70% of the redemption requests have come from Asia, despite the fact that non-US investors make up only about 20% of the fund’s assets.

JPMorgan analysts told FT that because a big selling point of Blackstone’s real estate fund has been the availability of monthly liquidity, the analysts believe “advisors will think twice before allocating new capital to the fund.”

The analysts also suggested that the limitation on withdrawals might drive more investors to seek redemptions from BREIT.

The withdrawal limit adds context to a huge deal Blackstone announced this week to sell its stake in two Las Vegas hotels for $5.65B—a deal that was largely a cash transaction which will inject the REIT with liquidity to cover the surge of withdrawals from its fund.

Vici Properties, majority owner of the MGM Grand Las Vegas and the Mandalay Bay, acquired Blackstone’s 49.9% stake in both hotels for $5.5B, the largest hotel-casino trade in Las Vegas this year.

Blackstone will receive $1.27B in cash and Vici will assume Blackstone’s share of about $3B in debt, according to a report in the Wall Street Journal.

Earlier this year, Blackstone sold the Cosmopolitan casino and hotel on the Las Vegas Strip for $5.65B, which the firm said was its most profitable transaction of single asset.

“If there is good news, it is that BREIT has plenty of liquidity with what appears like a remote chance of being a forced seller,” JPMorgan said.

Originally published on Globest.

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