Blackstone BREIT Halts Redemptions: Investor Confidence and Market Insights

Blackstone just announced that BREIT redemption requests would be temporarily halted. 

Why is this a big deal? Because it could represent investors’ lack of confidence in the market and/or BREIT. 

Why is BX’s stock down so much today? Because BREIT has emerged as a fundraising juggernaut over the last 5-6 years and has generated meaningful profits. 

What is “gating”? There are typically three ways you can invest in real estate: 1) at the asset level, where you get your capital out when the asset is sold/refinanced, 2) in a closed end fund, where you get your capital out at the end of the fund’s life, or 3) in a perpetual (or open end) vehicle, where you get your capital out by selling to another buyer. 

There are three primary types of perpetual real estate vehicles: A) Publicly-traded REITs, which you can sell anytime on a stock exchange, B) non-listed, private open end funds (typically core funds), and C) non-listed private REITs.

3B and 3C are very similar from a structural perspective. They both tend to focus on durable, income-producing assets, but A caters to institutions and pension funds while B caters to retail investors. And they both face a similar challenge: How do investors get out? With no public exchange, the sponsors of these vehicles essentially take investors out when readily available capital allows. But when capital isn’t readily available—say, in a degrading market, where managers could have to recognize big losses from selling—these managers have the ability to put up “gates” to restrict exits. As you would expect, investors don’t love being blocked from exiting, so gating is somewhat of a red flag. However, given the significant run up in values over the last few years, higher interest rates, and evolving real estate outlooks in the face of a potential recession, we wouldn’t be surprised to see more headlines about gating in 2023.

PS - more than half of all institutional real estate capital raised this year has gone into Blackstone funds, and they’re sitting on more than $60 bn of dry powder.