Blackstone, the world’s largest “alternative” asset manager, appears to be going insolvent as it once again, for the second time in the past year, blocks withdrawals from its $70 billion real estate income trust (REIT).
Following “a flurry of redemption requests” in excess of the fund’s preset 5 percent net asset value limit for withdrawals, Blackstone decided to stop allowing investor withdrawals altogether to stop the bleeding.
In March, Blackstone fulfilled withdrawal requests of $666 million, which amounts to just 15 percent of the $4.5 billion that was actually requested that same month. It would seem as though Blackstone cannot cover anything more than that, despite promises from the company’s heads that everything is just fine.
“BREIT is not a mutual fund and has never gated,” reads a statement from a company spokesperson about the ordeal.
“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.”
Is Blackstone on the verge of insolvency?
According to Blackstone President Jonathan Gray, who spoke during an analyst earnings call back in January, the amount of withdrawal requests moving forward is expected to “normalize” – though, admittedly, he has to say something positive like this in order to prevent more investors from trying to withdraw.
In line with the broader market, Blackstone shares dropped about 4.2 percent following the news about the company’s withdrawal troubles. Last year, Blackstone shares dropped 43 percent, but so far in the first quarter of 2023 have gained back about 18.4 percent in value.
Last year, BREIT’s net asset value rose by 8.4 percent while its publicly traded Dow Jones U.S. Select REIT Index fell 29 percent.
“Cognizant of easing forward interest rate expectations, we believe the reacceleration of gross redemptions may weigh on the shares,” said Credit Suisse analysts, led by Bill Katz, in a note to investors.
It would seem that Blackstone is so overleveraged in a fractional reserve banking kind of way that it can only handle a very small percentage of its investors asking to withdraw their money at one time. Every time that percentage exceeds 5 percent, the company has to cut off withdrawals.
“It’s not so simple to get a redemption out of a REIT, private equity, or hedge fund,” someone commented about the matter. “You’re not depositing money into a bank.”
Numerous others speculated that perhaps Blackstone is already insolvent, especially since its assets are primarily residential properties that are now losing value as the markets falter.
“Real estate is crashing,” one of them wrote. “CRE (commercial real estate) is in the septic tank already and MFR (multi-family residential) and SFR (single-family residential) are right behind.”
Another hypothesized that perhaps Blackstone is feeling the same contagion as the banks right now.
“Their liabilities are falling bond prices, a prolonged inflation and assets of real estate diminishing with long 30-year maturities at lower rates than bond yields,” one said.
“I imagine they would actually strategize a fine rope walk: sell enough necessary holdings to cover their liabilities without crashing the residential market.”
In truth, Blackstone got itself into this mess by massively inflating the real estate market, so perhaps it is time for the company to just crash the value and learn its lesson, along with all of its investors who took a high-risk bet.
“I know that Blackstone singlehandedly wrecked the residential real estate market nationwide by driving prices sky high with their purchase program in every market,” another commenter explained.
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