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What happens when alternative asset managers go after traditional institutional clients as well as retail money and then face a bear market?

Blackstone Real Estate Income Trust and other privately held REITs on how asset managers could be hurt when retail investors try to redeem en masse during tough times. , is giving a warning.

Starwood Capital Group, KKR&Co. and Blackstone, non-trading real estate investment trusts, have curbed redemptions from their funds last year as market volatility increased, all three non-trading REITs told the SEC. This was revealed in the submitted report.

This means that only a portion of the investor’s funds will be returned. In filings with the SEC, all three alternative-money managers generally demand reimbursement if they exceed a vehicle’s insurance limits or place an undue burden on the vehicle’s liquidity or operations. He said he could not respond to all of them.

Industry experts like Kevin Gannon expect the gates to remain in place until the third quarter of 2023, and possibly for the rest of the year.

Mr. Gannon is chief executive officer of Robert A. Stanger & Co., an investment bank and real estate financing advisory firm based in Shrewsbury, New Jersey that tracks non-trading REITs.

This was a disrespectful wake-up call for mostly wealthy investors in non-trading REITs accustomed to more liquid instruments. It will also be a disappointment for alternative investment managers that have built their businesses for retail investors at a time when funding from traditional institutional clients is declining.

For example, Blackstone’s $70 billion Blackstone Real Estate Income Trust, known as BREIT, had a redemption claim of 2% of its monthly net asset value and 5% of its quarterly NAV limit in November and December. , it said in its March 28 SEC filing. As a result, BREIT has fulfilled 43% of his requests in November and his 4% of repurchases requested in December. According to Blackstone’s letter to investors, BREIT fulfilled a 15% share buyback requirement in March.

in response to pension and investment“BREIT is not a mutual fund and has never been gated,” Blackstone said. We have paid nearly $5 billion to redeeming shareholders since the date,” the company said.

“What matters is the strong performance, with BREIT achieving an annualized net profit of 12.3% since its inception.”

“As I have said many times, the BREIT valuation multiples have been adjusted to reflect the high interest rate environment,” Blackstone said. “In fact, since 2022, we have sold more than $6 billion of real estate at a premium to book value.”

Some non-trading REITs, including the BREIT, have had institutional investors in the past, but one investor took advantage of a need for cash to prepare for redemption, according to industry sources.

in January, University of California The Auckland board invested $4 billion in BREIT shares. But that capital came with the following problems: 6 years lockup Also guaranteed is an 11.25% annualized net income backed by up to $1 billion in Blackstone BREIT shares, putting UC in a significantly different position from BREIT’s predominantly high net worth investors.