More on Blackstone

As blog readers will know, there has been controversy surrounding UC's investment in Blackstone's real estate investment trust (BREIT). UC had $2 billion in BREIT. It added another $4 billion to stem a run on the bank. And, more recently, added another $500 million. There have been objections to its performance as a landlord raised by tenant and other groups at a recent meeting of the Regents' Investments Committee. This blog additionally raised the issue of risk. UC was guaranteed a (very high) rate of return of 11.25% by BREIT. No regent raised any questions about the risk entailed. All the focus was on the landlord issues. Blackstone had representatives at the meeting who portrayed BREIT as a good landlord and the meeting turned into what we described as a lovefest.* 

A more realistic assessment recently appeared in the Financial Times. Excerpt below:

Blackstone steps up tenant evictions in US with eye on boosting returns

Hundreds affected as one of biggest US landlords calls time on long period of pandemic forbearance

Mark Vandevelde   1-29-23

Blackstone has filed eviction lawsuits against hundreds of tenants across the US as it winds down one of the real estate industry’s most generous pandemic-era forbearance programmes, in a move that executives say will boost financial returns at the company’s redemption-hit real estate fund. Court records from Georgia and Florida show that companies owned by Blackstone have commenced legal proceedings against dozens of tenants every month since August, launching more cases in a typical week than the total for the first seven months of 2022. At the same time, consultants working for Blackstone have been calling local politicians in California to warn of a probable uptick in evictions in areas of the state that have significant numbers of delinquencies, said people familiar with the conversations.

The outreach from Blackstone points to the delicate task confronting the private equity group, one of the biggest landlords in the US, as it seeks to maximise returns while operating under far more public scrutiny than local property owners in what has historically been a fragmented market. Blackstone bought billions of dollars worth of apartment buildings, suburban houses and other residential assets during the pandemic. Many of those acquisitions were made by Breit, a $69bn fund aimed at wealthy individual investors that last month imposed limits on withdrawals to curb a rush of investors trying to pull their money out.

During a global video call for employees last month, Blackstone’s real estate chief Nadeem Meghji sought to reassure staffers about the fund’s performance. He pointed to a resumption of evictions as a reason to have “confidence in [the] cash flow growth” of its housing portfolio, according to details passed to the Financial Times after the event. Meghji told the employees that Blackstone was “seeing a meaningful increase in economic occupancy as we move past what were voluntary eviction restrictions that had been in place for the last couple of years.” Federal law prevented landlords from evicting tenants for failing to pay rent in the early months of the pandemic, although that moratorium — like the longer-lasting versions imposed by some local governments — has been off the books for more than a year.

There is no national registry of evictions in the US. But data collated from local court records in nine states by researchers at the Eviction Lab at Princeton University suggest that many landlords returned to normal rent collection months ago. Eviction cases quickly picked up in the summer of 2020 after coming to a near-halt in the early weeks of the pandemic. The weekly number of eviction cases recorded by the Princeton researchers steadily increased during 2021 before stabilising last summer at a rate slightly below the pre-pandemic norm. In contrast, Blackstone’s voluntary programme of assistance for needy tenants started earlier and extended far longer than those required by law. It was also more extensive than the help offered by most residential landlords. The company waived credit card fees and penalties for late payment, allowed residents to break leases or add new roommates and did not evict anyone for failing to pay rent for more than two years.

Despite those costly support measures, Blackstone’s real estate business has outperformed publicly traded peers — helped, executives say, by a bet on rising interest rates and a focus on fast-growing population centres in the country’s west and south. BREIT reported returns of 8.4 per cent last year, even as a broad basket of public real estate investment trusts tracked by index provider MSCI lost about one-quarter of its value. Unlike public REITs, which trade on the stock market at fluctuating prices, BREIT offers investors the opportunity to sell a limited number of shares each month at a price reflecting the value at which investments are carried on the fund’s books. But the large number of redemption requests submitted in December prompted Blackstone to impose the restrictions on withdrawals...

Full story at https://www.ft.com/content/5ac750a5-c454-485d-8974-17627c47ea20. 

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*https://uclafacultyassociation.blogspot.com/2023/01/more-on-blackstone-lovefest.html; https://uclafacultyassociation.blogspot.com/2023/01/watch-regents-investment-committees.html.