Real Estate: Blackstone Faces Toughest RE Market Since BREIT’s Founding

April 16, 2020 | News, Real Estate

Blackstone’s non-traded real estate fund (BREIT) faces the most challenging environment since its 2017 inception.

BREIT has $34 billion in total assets. The group has been a big part of the firm’s real estate fundraising efforts in the past few years. Concerns exist that non-traded REITs like Blackstone’s offering are currently over-inflating their asset value. Publicly-traded REITs have seen their asset values fall by 20% or more in the past month. The REIT is priced once a month with the help of outside sources.

LPL Financial, a major financial services firm that works with independent advisors, has shut down new purchases of non-traded REITs. These suspensions include the Blackstone fund. LPL fears that these firms’ net asset values do not reflect the actual value of the assets in the current environment.

BREIT and Its Property Challenges

BREIT entered the current tumultuous period with a portfolio that had invested primarily in two of the strongest sectors of the commercial real estate markets.

They have significant holdings of industrial properties that benefitted from strong demand for warehouse and shipping space by e-commerce companies like Amazon (NASDAQ: AMZN). The fund also has a strong presence in apartment complexes. These funds have fared well despite the number of U.S. renters who did not pay April rent.

Blackstone’s fund is likely underwater on its most recent purchases in the Las Vegas market, however. As the market peaked, Blackstone purchased the casino and hotel operations of the Bellagio from MGM Resorts International (NYSE: MGM) for $4.25 billion late last year. They also teamed up with MGM Growth Properties to buy MGM Grand and Mandalay Bay Resorts in February for $4.6 billion.

BREIT has returned about 10% a year since inception based on Blackstone’s monthly pricing. The value of the funds’ shares has only declined in tow months since the fund started. However, many expect the most recent pricing to show a third monthly decline due to the economic shutdown.

Related: Private Equity: BlackRock Reports Earnings for Q1 2020

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