Mixed Signals Emerge from Blackstone’s Property Fund

While Blackstone’s real estate investment trust is no longer having issues fulfilling redemption requests, raising funds is proving to be a different story.

Blackstone Real Estate Income Trust fulfilled all investor redemption requests in March, the second consecutive month the flagship property fund was able to do so and the first instance since 2022, the Wall Street Journal reported.

Redemption requests are falling, marking $961 million in February and $799 million in March. That’s a sharp contrast to months like January 2023, when redemption requests surpassed $5 billion.

Fundraising, however, doesn’t seem poised to return to earlier levels. The fund last month took in $228 million, excluding reinvested dividends by existing investors, for the most fortuitous month of the year so far. But it’s a small percentage of the $2 billion to $3 billion BREIT was raking in on a monthly basis in the first half of 2022, before interest rates rose and commercial real estate tumbled.

Last year, the fund failed to generate enough cash to cover its dividend, marking the first annual shortfall in the fund’s history.

BREIT is positioning itself to take advantage of the commercial property downturn. In a letter to shareholders, the company said the sector is at an “inflection point” and “values are bottoming.”

To seize the moment, BREIT needs funds. Recent economic data, however, is threatening to thwart the Federal Reserve’s plan to cut interest rates in the coming months. That’s sparking concern among investors, who may not be interested in pouring money into an investment strongly impacted by rates.

For its part, BREIT has exited the office market and turned its focus to property types that have proven more successful in the post-pandemic, elevated interest rate world, such as student housing and data centers.

The fund posted a 1.8 percent return in the first quarter, a turnaround from a 0.5 percent decline seen for the whole of last year; Breit’s annualized net returns since its 2017 inception are 10.5 percent.

— Holden Walter-Warner