By Chibuike Oguh
NEW YORK (Portal) – Stephen Schwarzman, chief executive officer of Blackstone Inc, said Wednesday the redemptions of his firm’s $69 billion untraded real estate income trust (REIT) were driven by investors more inclined towards the Market volatility than affected by dissatisfaction with the fund.
Blackstone’s shares have lost 15% of their value since Dec. 1, when the New York-based company announced it had limited redemptions for the first time from the REIT, which markets to wealthy investors rather than institutional clients like pension funds will and insurance company. Blackstone relies on the REIT for about 17% of its earnings.
Other such funds have seen large redemptions, with investment firm Starwood Capital updating investors last week that its $14.6 billion untraded REIT had also raised gates.
There has also been a wave of redemptions in other untraded Blackstone funds marketed to high net worth investors. The private equity firm announced earlier this week that its $50 billion untraded business development company, a provider of corporate credit, had reached its pre-set limit on repayments, though no withdrawals were restricted.
Schwarzman said at Goldman Sachs’ financial services conference that a liquidity crisis in Asia hit individual investors particularly hard, as the Hang Seng index plummeted and many also had to cover their accumulated positions with debt, leading to financial difficulties.
“If you’re an investor that has margin debt and your market plummets 40%, you can imagine what it was like to be one of those people… As the world is busy shrinking, people are getting scared,” he said Schwarzman. He added that the redemptions don’t mean investors are unhappy with the REIT and its earnings.
Blackstone has reported a 9.3% year-to-date return after fees for its REIT, in contrast to the 22.19% decline in the publicly traded Dow Jones US Select REIT Total Return Index over the same period.
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Schwarzman said the REIT’s returns were due to its portfolio of warehouses and apartment buildings in the southern and western United States, which have been supported by strong population growth and short leases that offer more opportunity to adjust prices to inflation. He added that the fund also made $5 billion in gains from interest rate hedges that were taken ahead of the Federal Reserve’s rate hike cycle.
“If interest rates go down, the value of all real estate will be worth a lot more. So we actually support that,” Schwarzman said.
REITs, which are backed by money managers including Blackstone, Starwood, Ares Management Corp, KKR & Co Inc and Brookfield, saw redemption requests surge in the first nine months of the year, according to data compiled by real estate consultancy Robert A Stanger & Company, Inc.
“If there’s more confidence, whether it’s the Fed stopping raising rates or some other triggering event, then they’re going to put money into those types of products if they do well,” Schwarzman said.
(Reporting by Chibuike Oguh in New York; Editing by Stephen Coates)