Activity this week in the largest nontraded real estate investment trust, the Blackstone Real Estate Income Trust Inc., is an indication of signs of life in commercial real estate despite interest rates that look like they will remain high for months to come.
Blackstone Real Estate Income Trust, known as BREIT, on Thursday said it was selling a portfolio of 19 student housing properties to funds managed by private equity giant KKR for close to $1.64 billion. BREIT originally acquired the student housing portfolio in 2018.
Meanwhile, BREIT also recently told investors it was able to meet client redemptions in February and March for the first time since late in 2022, according to the Wall Street Journal. Spooked by high interest rates and a moribund market for office real estate, BREIT investors started pulling money from the fund 18 months ago.
BREIT had $60.7 billion in assets at the end of last year.
Blackstone has been dong a bit of wheeling and dealing. Earlier this month, it said it was buying Apartment Income REIT through its global real estate fund, Blackstone Real Estate Partners, and not through BREIT, for $10 billion in cash.
"It looks like a lot of various, large institutions with lots of cash are buying properties opportunistically, and with one hand they're selling to raise cash to buy with the other," said Brian King, CEO of Lodas Markets.
"Many of these institutions and funds bought properties using floating rate debt and want to refinance, but interest rates are high," King said. "That's creating a lot of stress, particularly for smaller real estate funds and sponsors, and causing them to sell. And it's very unlikely interest rates are going to go down any time soon."
"I know that certain people in commercial real estate marketplace think that prices are at the bottom but we don’t think that’s the case," said James Corl, head of private real estate at Cohen & Steers. "The point of maximum uncertainty was fourth quarter last year but we still think prices are going lower. Interest rates aren’t going down anytime soon."
2024 has been tough going for REITs, with nontraded REITs are having a difficult time raising cash from clients.
According to Robert A. Stanger & Co. Inc., in the first two months of the year, sales of nontraded REITs by financial advisors totaled just about $900 million, for an annualized rate of $5.4 billion. That compares with $10.2 billion in sales in 2023 and $33.3 billion the previous year, according to Stanger.
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