Blackstone suspends withdrawals from its $69 billion real estate investment fund

Blackstone on Thursday limited withdrawals from its $69 billion private real estate investment trust (REIT) after a surge in applications, in an unprecedented blow to a franchise that helped it become a giant of asset management.

The restrictions were announced after redemptions hit preset limits, fueling investor concerns about the future of the REIT, which accounts for about 17% of Blackstone’s earnings.

Blackstone shares were down 7.1% on the news on Thursday and were down another 2% on Friday morning at $83.45.

Many investors in the real estate fund are concerned that Blackstone has been slow to adjust the valuation to that of publicly traded stocks, which have been hit by interest rate hikes, a source close to the fund said. The rise in rates weighs on real estate values ​​because it makes financing properties more expensive.

Blackstone has reported a rNet Fee Return of 9.3% YTD for Your REITwhich contrasts with the 22.19% drop in the Dow Jones US Select REIT Total Return Index in the same period.

Alex Snyder, a portfolio manager at CenterSquare Investment Management LLC, said the arbitrage between the value Blackstone has assigned to its real estate portfolio and the value of publicly traded REITs caught investors’ attention.

People are taking profits at the value that Blackstone says their REIT shares are at,” Snyder said.

A Blackstone spokesman declined to comment on how the New York-based company calculates the valuation of its REIT, but said its portfolio focused on rental housing and logistics in the southern and western United States that have short-term rentals that beat inflation.

The spokesperson added that the REIT was based on a long-term, fixed-rate debt structure, making it resilient.

“Our business is based on performance, not cash flows, and the performance is rock solid,” the spokesperson said.

El REIT is traded to individual investors high purchasing power.

Two sources familiar with the matter said turmoil in Asian markets fueled by concerns about China’s economic prospects contributed to the withdrawals. Most of the investors who bailed out money were from Asia and needed the liquidity, they noted.

Blackstone told investors in a letter that it would stop withdrawals from its REIT after receive in November requests for reimbursement greater than 2% of its monthly net asset value and 5% of its quarterly net asset value.

As a result, the REIT allowed investors in November to repay $1.3 billion, equal to about 43% of requests.