As investors race to flee, Blackstone restricted withdrawals from its $125 billion real estate fund

A private equity firm sells casino stakes in Las Vegas.

Following a surge in redemption requests, Blackstone has curtailed withdrawals from its $125 billion real estate investment fund, as investors scramble for cash and concerns mount over the long-term sustainability of the commercial property market.

According to a note given to investors on Thursday, the private equity firm authorised only 43% of redemption requests in its Blackstone Real Estate Income Trust fund in November. Blackstone's stock dropped as much as 8%.

The withdrawal limit emphasises the risks wealthy individuals have taken by investing in Blackstone's massive private real estate fund, which has $69 billion in net assets after accounting for debt and includes logistical facilities, apartment buildings, casinos, and medical office parks.

According to those aware with the situation, roughly 70% of redemption demands have come from Asia, a disproportionate number given that non-US clients constitute for just about 20% of Breit's total assets.

According to one fund partner, the recent dismal performance of Asian markets and economies may have put pressure on investors, who now require cash to meet their obligations.

According to a recent National Association of Realtors survey, rising inflation and interest rates are putting pressure on commercial real estate in the United States. Globally, the tone in the property market has deteriorated, and several high-profile investors have warned of a lack of credit in certain sectors.

The increase in redemption requests coincides with Blackstone's $1.27 billion sale of its almost 50% stake in the MGM Grand Las Vegas and Mandalay Bay Resort casinos in Las Vegas. The assets were valued at more than $5 billion when debt was factored in.

According to a person familiar with the situation, the proceeds from the sale, which was agreed at a premium to the carrying values of the properties, will help Breit with liquidity as it handles redemption requests — or be reinvested in faster-growing property assets.

Breit received $1.8 billion in redemption requests in October, or around 2.7% of its net asset value, and has received redemption requests in November and December that exceed the quarterly limit.

In November, it permitted investors to withdraw $1.3 billion, or 43% of the redemption requests it received. According to the notification, Blackstone will enable investors to redeem only 0.3% of the fund's net assets this month.

Private capital managers have increasingly appealed to retail investors, claiming that wealthy investors should have the same opportunity to diversify away from public markets as pension and sovereign wealth funds. Money managers make the case that by giving up some liquidity rights, they can earn larger returns.

Clients can redeem up to 2% of assets per month in the Breit fund, with a maximum of 5% allowed in a calendar quarter. The fund returned more than 9% in the nine months to the end of September due to increased property rents and dividend payments.

Its rise in value contrasts with the steep loss in value of publicly traded real estate investment trusts in response to plummeting stock markets.

In recent years, the fund, together with a private credit fund named BCRED, has been a major source of Blackstone's expansion in assets under management. Rising redemption requests from both funds have troubled analysts in recent quarters as an indication of slowing asset growth.

“Our business is built on performance, not fund flows, and performance is rock solid,” Blackstone said, emphasising the fund's focus on rental housing and logistics in fast-growing parts of the United States, as well as its primarily fixed-rate liabilities.

By fLEXI tEAM