Blackstone-REIT Still Draining

The slow-motion run on the bank at Blackstone Real Estate Investment Trust (BREIT), to which the Regents' chief investment officer committed $4.5 billion of pension and endowment funds, is continuing. As we have pointed out in several prior blog posts, so far only one regents (and one Daily Bruin columnists - plus yours truly) has questioned the investments from a financial risk-reward perspective.* All the other discussion has been on landlord-tenant relations.

From Reuters:

Blackstone Inc (BX.N) said on Monday it had again blocked withdrawals from its $70 billion real estate income trust in March as the private equity firm faced a flurry of redemption requests. Blackstone has been exercising its right to block investor withdrawals from BREIT since November after requests exceeded a preset 5% of the net asset value of the fund. BREIT fulfilled March withdrawal requests of $666 million, representing only 15% of the $4.5 billion in total redemption requests for the month, the firm said in a letter to investors.

Total redemption requests for March were 15% higher than the approximately $3.9 billion demanded by investors in February but 16% lower than the $5.3 billion Blackstone received in January. "BREIT is not a mutual fund and has never gated," a Blackstone spokesperson said in a statement. "It is a semi-liquid product and is working exactly as planned. In fact, BREIT has paid out nearly $5 billion to redeeming shareholders since November 30th when proration began."

The level of withdrawal requests is expected to normalize over time as Blackstone works through its backlog, Blackstone President Jonathan Gray said during an analyst earnings call in January. Blackstone shares were down 4.2% at $84.10, in line with the broader market, which was also weaker. Its shares have gained 18.4% in the first quarter after falling 43% in 2022. BREIT's net asset value had risen by 8.4% last year while the publicly traded Dow Jones U.S. Select REIT Index (.DWRTF) fell 29%. "Cognizant of easing forward interest rate expectations, we believe the reacceleration of gross redemptions may weigh on the shares," Credit Suisse analysts, led by Bill Katz, said in a note to investors.

Source: https://www.reuters.com/business/finance/blackstone-reit-limits-investor-redemptions-again-march-2023-04-03/.

So, will UC's investment turn out to be a good deal eventually? I have no idea. Should the Regents - as fiduciary trustees - ask questions about a situation in which the chief investment officer hears news reports about a run on the BREIT, calls the CEO of the BREIT and cuts a deal on his own motion ultimately totaling $4.5 billion? Absolutely. Should they question the process as well as the deal. Also absolutely. The Regents spent half of 2022 fretting about the process by which UCLA changed athletic conferences with lengthy discussions, special meetings, etc. There seems to be an imbalance in priorities. 

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*http://uclafacultyassociation.blogspot.com/2023/03/hernandez-approaches-right-question-on.html; 

http://uclafacultyassociation.blogspot.com/2023/03/it-wasnt-just-hernandez-bruin-columnist.html.