The flummoxing economy has spooked even the ultra-rich and that’s a concern for global real estate funds, such as BREIT, Blackstone’s giant property fund with a current net asset value of $68 billion.
But a recent large investment from the University of California into BREIT serves as either a propitious sign or portends gloom.
Recessionary fears persuaded many investors to tack toward liquidity and pull out money from funds it had committed to, like BREIT. In response, Blackstone in early in December said it would limit investor withdrawals from its real estate investment fund following a spike in redemption requests and following an announcement that it would sell its stake in two Las Vegas hotels—Mandalay Bay and MGM Grand.
Withdrawals from BREIT are limited to 2% of the fund each month or 5% a quarter.
According to the Financial Times, in October, Blackstone received $1.8 billion in redemption requests—2.7% of the net asset value—and had received future requests exceeding its quarterly limit.
At the time, a Blackstone spokesperson told the FT that: “Our business is built on performance, not fund flows, and performance is rock solid.”
BREIT rose to prominence during the era of cheap money, snatching up large swaths of real estate from hotels to apartments. According to Blackstone’s website, BREIT’s portfolio is concentrated in the U.S. South and West, which “we believe continue to benefit from outsized population, job and wage growth.”
Its holdings are diverse. Rental housing—its largest sector—composes 55% of total holdings while hospitality is one of its lowest hold sectors at 3%, joining office and self-storage. Its second-largest sector is industrial at 23%.
Despite recent turbulence, BREIT received a shot in the arm this week when the University of California’s endowment, known as UC Investments, elected to put $4 billion into the fund, locked up for five years with a two-year limited withdrawal period afterward, for an average of six years. (A typical BREIT investor invests around $70,000.)
The $4 billion does come with strings attached. Blackstone, according to The Wall Street Journal, will use up to $1 billion to pay UC Investments if it fails to earn 11.25% a year after fees. “It’s a return comparable with the 10% annual dividend and option to buy discounted shares secured by Warren Buffett when he put $5 billion into Goldman Sachs at the height of the 2008 financial crisis,” WSJ writes.
In an interview with CNBC, Blackstone COO Jon Gray said they are starting the new year “with a win” and that the University of California’s investment is “a massive affirmation of the quality of what we’ve built.”
Blackstone’s BRE Hotels & Resorts has a fund focused solely on hotel real estate with a portfolio of more than 100 hotels with a focus on luxury and upper upscale resorts.
In 2007, Blackstone acquired Hilton for $26 billion and made a $14 billion profit when it fully cycled out of it in 2018.