Blackstone real estate fund surpasses $50 billion

The largest fund administered by Blackstone Group, the giant investment firm known for raising capital from institutions such as pension funds and endowments, is now one that primarily targets individual investors.

Blackstone Real Estate Income Trust, a fund sold in increments as low as $2,500, has raised more than $50 billion since its launch five years ago. The company used the fund, known as BREIT, to buy rental apartment buildings, warehouses, office buildings, casinos and other types of properties.

Like other funds structured as non-traded real estate investment funds, BREIT experienced a drop in fundraising in the early months of the Covid-19 pandemic. But by mid-2020 the pace had picked up, and last year BREIT had raised an average of more than $2 billion per month, or nearly 70% of all money invested in 2021 in non-REITs. negotiated.

“It exceeded even our own highest expectations,” said Jonathan Gray, President and COO of Blackstone.

BREIT has attracted investors in part by paying them an annual return of 4% to 5%, far more than corporate and government bonds have in recent years. Additionally, BREIT stocked up on properties that have risen in value in recent years, such as warehouses and rental apartments, even as the pandemic raged.

The combination of yield and rising property values ​​produced an average annual return of 15.2% for the three years ending Dec. 31, according to Robert A. Stanger & Co., an investment bank. which follows the non-traded REIT market.

Blackstone’s ability to sustain such performance in terms of both fundraising and investor returns will face new challenges in the years to come. Analysts doubt residential and industrial real estate can maintain its recent pace of price increases, especially if rising interest rates make bonds more attractive relative to real estate.

Meanwhile, Blackstone faces new competition in the fundraising world from investment firms hoping to emulate BREIT’s success by tapping into retail investors. Newcomers to the non-traded REIT space last year included Brookfield Asset Management and KKR.

“You would think that over time the market would expand,” said Kevin Gannon, chief executive of Stanger.

Blackstone executives expect the company to continue dominating the non-traded REIT sector. They say the fund will be able to maintain its strong growth by expanding into new types of properties such as data centers, storage and student housing.

Last year, BREIT joined other Blackstone investment vehicles in buying data center owner QTS Realty Trust in a deal that valued the company at around $10 billion. The fund also joined a partnership that last year purchased the real estate assets of the Las Vegas Cosmopolitan casino and hotel in Las Vegas.

“We’ve expanded what we do at BREIT,” said Gray, who led Blackstone’s real estate business until he was promoted to company president in 2018.

Blackstone executives also expect BREIT to perform well in an inflationary environment. They point out that properties such as warehouses and rental apartments have leases that reset every few years, allowing them to keep pace with or get ahead of rising prices.

“If you have a 30-year fixed rate lease, that’s not what you want in an inflationary environment,” said Frank Cohen, chief executive of BREIT.

Non-traded REITs have been around for decades. They fell out of favor with investors and financial advisers before Blackstone got involved in the business because they charged high fees and attracted regulatory scrutiny over disclosure issues.

Blackstone addressed these concerns with BREIT, which was structured differently from earlier unlisted REITs. There is more disclosure and fees are more aligned with fund performance.

“If we don’t generate strong returns, we don’t get paid as much,” Cohen said.

Write to Peter Grant at [email protected]

This article was published Dow Jones Newswires

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