Blackstone Inc.’s $68 billion real estate trust finds itself besieged by nine months of substantial redemption requests, all amidst a gathering storm over the commercial real estate markets.
Blackstone Real Estate Income Trust is the largest institutional landlord in the world. The latest ominous signal emanating from Blackstone Real Estate Income Trust (BREIT) comes in the form of a company announcement regarding its president’s extended leave.
In a Tuesday morning 8-K filing, BREIT disclosed that President A.J. Agarwal will embark on a nine-month sabbatical for continuing education starting September 15, 2023. Furthermore, he will step down from his role as President and Board member effective August 14, 2023.
Taking Agarwal’s place will be Robert Harper, BREIT’s current Head of Asset Management and Head of Blackstone Real Estate Asset Management Americas, as stated in the filing.
As BREIT grapples with management transition, it continues to navigate a challenging landscape of redemption requests since the previous November. Affluent investors, who have been rushing to exit the fund, have encountered redemption limitations aimed at curbing substantial outflows.
A Generous Bailout To Blackstone from the University of California
Back in January of this year, the University of California extended a lifeline to the $68 billion Blackstone Real Estate Income Trust (BREIT) by providing a $4 billion taxpayer bailout. This injection of funds was intended to sustain its operations.
“We are extremely pleased to have the endorsement of UC Investments, one of the most sophisticated institutional investors globally,” Jon Gray, Blackstone’s president, said in the statement.
Even though redemptions were spurred by investors needing liquidity, the non-tradable BREIT had returned 8.4% through November of last year.
Before this, Blackstone failed to make a $562.5 million payment on a real estate bond in March, as reported by Wion. The value of European properties has been affected by rising interest rates, causing the company to default on a $562.5 million bond backed by a portfolio of offices and stores owned by the Finnish company Sponda Oy. Despite Blackstone’s request for an extension to repay the debt, the bondholders declined, leading to the default.
The company attributed this contraction to a weak commercial real estate market. On the other hand, its credit and insurance funds performed better during the same period. Blackstone experienced a decline due to the decrease in the value of its real estate investments. During the first quarter of 2023, $4.4 billion in real estate assets were disposed of by Blackstone, compared to $9.5 billion in exits during the same period in 2022. The capital fresh deployments in the real estate sector also experienced a decline, from $7.5 billion in the first quarter of 2022 to $2 billion in the first three months of this year, according to the data.
The commercial real estate industry, valued at $20 trillion, has been facing a significant decline after decades of thriving growth supported by low-interest rates and easy credit. Since the pandemic, office and retail property valuations have been on the decline due to lower occupancy rates and changes in how people work and shop. The Federal Reserve’s actions to combat inflation by raising interest rates have also had a negative impact on the credit-dependent industry.
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