Blackstone flagship fund suffers first loss since inception, with average annualized return of 11% over the years

Blackstone Real Estate Investment Trust (hereinafter referred to as BREIT) has recorded its first loss in seven years.

Blackstone, the largest commercial real estate owner on Wall Street, and its flagship fund BREIT, incurred a loss of 0.5% in 2023, marking its first loss since its establishment in 2017. The net asset value of the fund has declined to $62 billion. In comparison, the fund achieved a return rate of over 30% in 2021 and 8.4% in 2022, with an average annualized return of 11% over the years.

At the beginning of 2023, the scenes of Silicon Valley Bank's collapse and the Fed's market rescue are still vivid. Due to the continuous rise in interest rates and weak commercial loans, banks' profit prospects have been dimmed, leading to tightened lending standards and difficulties for real estate companies to obtain financing. The US commercial real estate is facing a severe debt crisis, resulting in declining profits and cash flow pressure, which has affected real estate-related funds.

Affected by this, Blackstone faced a severe redemption crisis in the first half of 2023. Let's take a look at the following data:

• In January 2023, BREIT received redemption requests totaling $5.3 billion, reaching a historical high. Only 25% of the applications, approximately $1.3 billion, were approved.
• In February 2023, BREIT received redemption requests totaling $3.9 billion, and only 35% of the requests, approximately $1.4 billion, were approved.
• In March 2023, BREIT received redemption requests totaling $4.5 billion, and only 15% of the requests, approximately $666 million, were approved.
• And for five consecutive months, the redemption limit was triggered, putting immense pressure on the US commercial real estate.

To avoid a large-scale redemption causing liquidity risks, Blackstone restricted the redemption of BREIT and tried to return the principal as much as possible. For example, according to a shareholder letter this month, BREIT has returned a total of $14.3 billion in redemption requests since November 30, 2022. The redemption pressure has improved recently.

Blackstone is actively taking remedial measures. In a recent statement to shareholders, Blackstone said:

"As a cross-cycle, long-term wealth-building tool in the real estate sector, BREIT's goal is not only short-term returns but also wealth accumulation over a longer period. BREIT has successfully provided consistent and positive returns, achieving an annualized return of 11% over the past seven years since its establishment on January 1, 2017."

In addition, Bloomberg pointed out that Blackstone has used interest rate hedging tools to mitigate the impact of rising borrowing costs.

Furthermore, in a memorandum, Blackstone also optimistically predicted that the investment value of real estate will gradually recover in an environment of future interest rate cuts.