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Blackstone REIT Upsizes Fundraising Goal by $10 Billion -- With a 'B'

What Will Fast-Growing Trust Buy Next After Leading Resurgence in Nontraded REIT Sector?
June 13, 2018
BREIT in March closed the $1.8 billion purchase of a 22 million-square-foot portfolio of 146 warehouse and distribution properties across the country.

Blackstone Real Estate Income Trust, Inc. (BREIT) confirmed it plans to raise another $10 billion from investors to acquire more real estate, tripling the fundraising goal for its nontraded real estate investment trust launched last year.

In a U.S. Securities and Exchange Commission filing this week, the Blackstone-sponsored REIT disclosed it plans to offer up to $10 billion in common stock shares in its so-called "best-efforts" offering, including unsold shares from its initial offering in late 2016, when Blackstone announced it intended to raise $5 billion.

The latest offering, managed by Blackstone Advisory Partners LP and advised by BX REIT Advisors LLC, will include $8 billion in primary offering shares and up to $2 billion in shares sold under a distribution reinvestment plan. BREIT plans to offer four classes of common shares with varying dealer-manager fees, commissions and servicing fees.

The additional capital is necessary because the fast-growing REIT had already raised $1.8 billion in 2017 and had acquired 272 properties for a total of $5.7 billion as of March 31. More than 80 percent of BREIT's portfolio consists of residential and industrial property, with hotel and retail properties making up another 18 percent of BREIT holdings.

Blackstone has helped spark a resurgence in the nontraded REIT sector, where fundraising fell to $4.2 billion in 2017, nearly 79% below the $19.6 billion raised during the sector's 2013 peak.

Nontraded REITs are required to register and file disclosure documents with the SEC, but their shares aren't traded on national stock exchanges. While not directly subjected to stock market volatility, investors may not be able to cash out for years since nontraded shares are typically bought and sold on secondary markets by networks of broker-dealers.

Once a popular and lucrative investment option, the sector fell out of favor following criticism from investors and regulators over the lack of disclosure regarding high fees and the illiquid nature of some investments, as well as a high-profile accounting scandal by one of the top sponsor of non-traded REITs.

But heightened institutional investor interest from the likes of Blackstone, Starwood Capital Group and other global investment institutions turned to the sector following the global financial crisis as an option for efficiently raising large sums from smaller so-called 'mom-and-pop' investors.

The recent success by Blackstone and others prompted consulting firm Robert A. Stanger & Co. to forecast a 33% bump in nontraded REIT fundraising this year, with Blackstone's REIT accounting for almost half of the 2017 total.

In December, TIAA’S Nuveen LLC announced plans to raise up to $5 billion with an initial public offering for a nontraded REIT, Nuveen Global Cities REIT Inc. In October, Starwood Capital filed with the SEC for a continuous offering of $5 billion in shares to buy commercial real estate but to date has not made any purchases.

"The private REIT market did not necessarily attract the highest-quality managers, and people were charging off a lot," said Blackstone Group President Jonathan Gray noted in April during Blackstone's first-quarter earnings call.

"We've moved into that space with a really high-quality product, and the markets responded."

Among other deals, BREIT in March closed the $1.8 billion acquisition of a 22 million-square-foot portfolio of 146 infill warehouse and distribution properties across the U.S., including so-called "final mile" distribution buildings. BREIT bought the portfolio from two funds sponsored by Boston-based Cabot Properties.

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