Blackstone's $69B Real Estate Fund Hits Redemption Limit

Blackstone Inc.’s $69 billion real estate fund for wealthy individuals said it will limit redemption requests, one of the most dramatic signs of a pullback at a top profit driver for the firm and a chilling indicator for the property industry.

Blackstone Real Estate Income Trust Inc. has been facing withdrawal requests exceeding its quarterly limit, a major test for the one of the private equity firm’s most ambitious efforts to reach individual investors.

The news, in a letter Thursday, sent Blackstone stock falling as much as 10%, the biggest drop since March.

“Our business is built on performance, not fund flows, and performance is rock solid,” a Blackstone spokesperson said, adding that BREIT’s concentration in rental housing and logistics in the Sun Belt leaves it well positioned going forward.

This year, the fund has piled into more than $20 billion worth of swaps contracts through November to counteract rising rates.

The fund became a behemoth in the real estate industry since its start in 2017, snapping up apartments, suburban homes and dorms and growing rapidly in an era of ultra-low interest rates as investors chased yield.

Now, soaring borrowing costs and a cooling economy are rapidly changing the landscape for the fund, causing BREIT to caution that it could limit or suspend repurchase requests going forward.

Blackstone’s creation of BREIT cast a spotlight on the space for nontraded real estate investment trusts. Unlike many real estate investment trusts, BREIT’s shares don’t trade on exchanges. It has thresholds on how much money investors can take out to avoid forced selling.

This means if too many people head for the exits, its fund board can opt to restrict withdrawals or raise its limits. BREIT said requests have exceeded the 2% of the net asset value monthly limit and 5% of the quarterly threshold.

“If BREIT receives elevated repurchase requests in the first quarter of 2023, BREIT intends to fulfill repurchases at the 2% of NAV monthly limit, subject to the 5% of NAV quarterly limit,” BREIT said in a letter Thursday.

Blackstone’s top executives have bet big on the fund. Bloomberg reported last month that President Jon Gray had put $100 million more of his own money in BREIT since July, as had Chief Executive Officer Steve Schwarzman, a person familiar with the matter said at the time.