Blackstone Real Estate Income Trust (BREIT) is an unlisted Real Estate Investment Trust launched by Blackstone in 2017
According to their 3Q 2022 update, gross assets are at 126 billion, and Net Assets at about 70 billion. Leverage ration is at 46%.
According to their 3Q 2022 update, gross assets are at 126 billion, and Net Assets at about 70 billion. Leverage ration is at 46%.
From the same spreadsheet, they seem to have delivered decent performance for their investors
BREIT invests in different kinds of properties (although a chunk is in rental housing) across America. You can view the list of properties here
BREIT invests in different kinds of properties (although a chunk is in rental housing) across America. You can view the list of properties here
News recently emerged that BREIT limited redemptions out of the fund.
The reason why this happened, is because BREIT is not traded on an exchange. An investor in an exchange traded REIT can sell the units to another investor on the secondary market. As BREIT is not listed, investors have to sell units back to BREIT.
The obvious problem here is that properties are illiquid. To pay off unitholders, the REIT has to sell properties to raise cash. However, you can't sell properties today and get the cash tomorrow to pay redeeming unitholders.
How BREIT manages this is to set limits on how redemptions can happen, which you can see from the offering terms page
1) redemption can only take place monthly
2) total repurchases are limited to 2% of NAV, and 5% of NAV quarterly
3) BREIT is not obligated to repurchase the shares (sometimes called "gating")
While these terms seem draconian, they are necessary because of the mismatch between the illiquid nature of the assets and the more frequent redemption cycle of the fund. This is demonstrated time (during Brexit) and again (during the Gilts turmoil).
So when a large number of Asian investors (who make up 20% of assets) choose to redeem their units (they made up 70% of the requests), these limitations were invoked. According to the Financial Times, these investors were redeeming during the year, because of high personal leverage and receiving margin calls. BREIT is marketed to wealthy individual investors.
The reason why this happened, is because BREIT is not traded on an exchange. An investor in an exchange traded REIT can sell the units to another investor on the secondary market. As BREIT is not listed, investors have to sell units back to BREIT.
The obvious problem here is that properties are illiquid. To pay off unitholders, the REIT has to sell properties to raise cash. However, you can't sell properties today and get the cash tomorrow to pay redeeming unitholders.
How BREIT manages this is to set limits on how redemptions can happen, which you can see from the offering terms page
1) redemption can only take place monthly
2) total repurchases are limited to 2% of NAV, and 5% of NAV quarterly
3) BREIT is not obligated to repurchase the shares (sometimes called "gating")
While these terms seem draconian, they are necessary because of the mismatch between the illiquid nature of the assets and the more frequent redemption cycle of the fund. This is demonstrated time (during Brexit) and again (during the Gilts turmoil).
So when a large number of Asian investors (who make up 20% of assets) choose to redeem their units (they made up 70% of the requests), these limitations were invoked. According to the Financial Times, these investors were redeeming during the year, because of high personal leverage and receiving margin calls. BREIT is marketed to wealthy individual investors.
While this may not seem important amidst all the noise of FTX, Twitter, Elon Musk and Tesla, it is noteworthy that gating was used. Amidst jittery markets, people may always be wondering if some event may trigger off other "failures" leading to bigger and bigger impacts.
Even if they do not, this is a useful note on the dangers of liquidity mismatch and how a canny fund manager manages it.
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