Back in June, we wrote about challenges BRIET was facing with investor redemptions. Three months on, things appear to be improving for Blackstone's crown jewel. In August, the non-traded REIT ("NTR") received approximately $3 billion of redemption requests and paid out $1.3 billion, or 43%--the highest percentage in nine months. Moreover, new requests for redemptions are trending down, while payouts are holding steady, as shown below. After months of treading water, BREIT's is finally able to chip away at the substantial redemption queue.
Source: Mantabye calculations based on data from Reuters.
At the end of August, BREIT had an estimated queue of $2.4 billion, down from a peak of $4 billion in February. Since November of 2022, when the fund's 5% NAV limits on withdrawal were triggered, BREIT has returned nearly $10.7 billion of capital to investors.
Source: Mantabye calculations based on data from Reuters.
What could be the catalyst for the improving fund flow dynamics? Well, performance certainly helps: BREIT is up 3.5% YTD. That's by far the best performance among the major NTRs; Starwood (SREIT) Ares (AREIT), the second and third biggest NTRs, have returned -2.9% and -1.1% YTD, respectively. Second, the arbitrage opportunity that existed between public traded and non-traded REITs (and which we previously discussed) is mostly done. As reminder, while publicly traded REITs and NTRs invest in similar types of stabilized, income-generating properties, NTRs are (i) relatively illiquid, and (ii) utilize mainly appraisal-based valuations that work on a lag (to public REITs). In 2022, the public benchmark FTSE NAREIT All Equity REIT Index was down 25%; while the NCREIF-ODCE Index, the core private real estate benchmark was up 7.5%! Providing investors the opportunity to take gains from NTRs, like BREIT, and invest in beat-down public REITs. By mid-2023 that dynamic has reversed, with the ODCE down -5.8% (through Q2) and the FTSE NAREIT up 3.0% (through Q2).
We think the outlook for BREIT is constructive. The NTR portfolio is overwhelming allocated to more resilient sectors such as single-family rentals (55%), industrial (23%), datacenters (5%) and just 5% in the more economically sensitive retail (3%) and office (2%) sectors. Blackstone, as firm, is also pretty savvy at hedging interest rate risks, so is likely to navigate the current macro environment better than other real estate firms. That said, Blackstone partners are still on the hook for hundreds of millions under the terms of its bailout $4 billion deal with the University of California, which guarantees UC a 11.25% return per year with the difference to made up by Blackstone. That's potentially $320 million less bonuses for the firm's partners this year. But something tells us they can afford it.
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