Blackstone’s beleaguered real-estate fund stems exodus

Blackstone sold a 22% stake in Las Vegas’s Bellagio last year.  (Wall Street Journal)
Blackstone sold a 22% stake in Las Vegas’s Bellagio last year. (Wall Street Journal)


The firm was able to fulfill all investor redemption requests in February and March for the first time since late 2022.

For signs that the turbulent commercial real-estate market is beginning to stabilize, look at Blackstone’s largest real-estate fund, known as Breit.

The firm was able to fulfill all investor redemption requests in February and March for the first time since late 2022, when a flurry of withdrawals compelled it to limit how much it could pay out.

“We believe commercial real estate is at an inflection point, with real estate values bottoming," Blackstone said in an April letter to Breit shareholders, who are mostly individual investors.

But that is only part of the story. Breit fundraising hasn’t returned to its previous robust levels. Investor withdrawals continue to greatly exceed new cash coming in, a sign of lingering worries about the backdrop for commercial properties.

Financial advisers who work with individual investors say most of their clients remain wary of commercial real estate, citing recent turbulence in the market and the latest signals from the Federal Reserve that it might not cut interest rates this year. Investors also fret over rising default levels and over supply that is putting downward pressure on apartment rents in some markets.

“People are afraid of real estate," said Rick Kahler, founder of Rapid City, S.D.-based Kahler Financial Group. “There’s no good news."

Blackstone’s more bullish outlook reflects a number of positive trends its executives think are being masked by negative headlines.

They note that even without rate cuts by the Fed, real-estate borrowing costs have declined. They point to the surge in new commercial mortgage-backed securities issues in the first quarter. Construction of many property types is also slowing, easing pressure on rents.

“Now is the time to be playing offense," said Nadeem Meghji, global co-head of Blackstone Real Estate. “You can’t wait for the all-clear signal."

Blackstone has been the biggest buyer of property this year, and not always through Breit. Its global fund agreed to pay $10 billion for Apartment Income REIT, which owns 76 rental housing communities. Earlier this year, Breit and another Blackstone fund agreed to acquire Tricon Residential, which owns, operates and develops single-family rental homes, for $3.5 billion.

But Breit has become a touchstone for the commercial real-estate industry, reflecting both the appetite for owning these kinds of properties and the remaining wariness among some investors.

Blackstone launched the fund—officially called Blackstone Real Estate Income Trust—in 2017. While Blackstone’s other real-estate funds were typically geared toward pension funds and other institutions, Blackstone created Breit to give individual investors a chance to own a piece of apartment buildings, warehouses, data centers and other types of commercial real estate.

The fund became one of Blackstone’s most successful products ever. At its peak, it boasted over $70 billion in net asset value. Rival firms, including Starwood Capital Group, Brookfield Asset Management and KKR, followed with their own versions of real-estate funds aimed at smaller investors.

In all, these commercial property funds for individual investors raised more than $87 billion between 2017 and the first half of 2022, when interest rates were low and commercial property was booming, according to Robert A. Stanger & Co., an investment bank that specializes in these so-called nontraded REITs. Unlike public REITs, these funds aimed at individuals don’t trade on a stock exchange.

In 2022, the sharp rise in interest rates and falling real-estate prices unnerved some investors in Breit, as well as other funds. Many rushed to pull out their money as the value of Breit’s shares declined.

Withdrawal requests spiked so much that in November 2022 Breit enforced a provision that allowed it to limit withdrawals so that the fund wouldn’t be pressured to sell assets at discount prices to meet them all. In 2023, Breit paid out more than $3 billion a quarter in redemptions, according to Stanger.

Other real-estate funds also started limiting redemptions when their investors began rushing for doors in 2022 and 2023. Some are still doing that, including funds sponsored by KKR and Starwood Capital.

Breit turned a corner in one respect this year. In February and March, redemption requests declined to $961 million and $799 million, respectively, low enough for Breit to pay all of them. In January 2023, redemption requests exceeded $5 billion.

Yet fundraising hasn’t fully recovered. In the first half of 2022, Breit was raking in $2 billion to $3 billion a month. Excluding reinvested dividends by existing investors, the fund took in only $228 million in March and smaller amounts in both January and February.

Blackstone executives expressed confidence that investors will return to Breit. The fund has invested in some of the most successful property types, like data centers and student housing. In the first quarter, Breit posted a 1.8% percent return, including dividends, after a total decline of 0.5% last year, the firm said.

Since its inception, Breit’s annualized net returns have been 10.5%. Those returns have been boosted by about $18 billion of asset sales since 2022, including the JW Marriott San Antonio Hill Country Resort & Spa and a 22% stake in the Bellagio, a Las Vegas casino and resort.

Meghji said the current market is comparable to late 2009 and 2010 when most of the news in commercial real estate was awful. “That was the opportune time for us to be doubling down," he said.

But others say it may take time for investors to buy into Blackstone’s vision.

“Investors are saying we want our money back and we’re not giving you more," said Kevin Gannon, Stanger chief executive.

Write to Peter Grant at

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