Blackstone Real Estate Income Trust, one of the world's largest commercial property owners, has launched new fundraising efforts to attract small individual investors as well as wealthy ones and institutional buyers.
The shift expands access to Blackstone REIT's $100 billion-plus real estate portfolio through two distinct channels: a Delaware Statutory Trust program targeting investors seeking capital gains tax breaks, and a new class of shares targeting the wealthiest investors, the company said in a regulatory filing.
It comes as Blackstone REIT, a subsidiary of New York-based private equity giant Blackstone, has emerged from significant challenges, as higher interest rates have led to increased redemption requests from its investors. The REIT's total assets have fallen by $40 billion over the past three years, partly due to selling property to pay investors who clamored to cash out as commercial property values declined.
The REIT has sold about $20.8 billion in properties from 2023 through this past September, according to its quarterly reports, while acquiring just $41.4 million. In that same time, it has repurchased $26.6 billion in common stock, while raising just $9.6 billion through the issuance of common stock.
Blackstone REIT also had to navigate a sudden leadership change, with the firm now led by CEO Katie Keenan after Wesley LePatner was killed in a mass shooting outside the firm's headquarters offices earlier this year.
Blackstone REIT is joining nontraded REIT rivals including Brookfield, Starwood, Nuveen, Hines and Ares Management that have adopted Delaware Statutory Trust structures in the past couple of years, which allow for investments in individual properties. The programs are reshaping the fundraising landscape while capital inflows to nontraded REITs remain subdued.
"While their public offering capital raises have declined over the past several quarters, Blackstone remains the dominant player in the nontraded REIT industry, accounting for over 50% of public capital raised in the second quarter," Luke Schmidt, vice president and director of research for consulting firm Blue Vault Partners, told CoStar News in an email. With the new program, "They're likely targeting a new set of investors who may not have previously participated."
As the Federal Reserve's borrowing costs climbed in recent years, concerns over the real estate market's outlook prompted some investors to seek liquidity, resulting in limits on withdrawals to preserve Blackstone REIT's stability. The redemption pressure highlighted the importance of adapting fundraising strategies and product offerings to maintain momentum. Commercial property professionals expect the Fed's two interest rate cuts since September to spur deals.
Targeting two markets at once
Blackstone REIT's dual-track expansion addresses two critical market segments simultaneously. The Delaware Statutory Trust program leverages the so-called 1031 exchange market, which has averaged about $29.4 billion in deals in each of the past 10 years, according to CoStar data. The transactions, named after Section 1031 of the U.S. tax code, give property sellers a reinvestment option that preserves tax advantages while eliminating management burdens.
The new premium share classes target institutional investors — pension funds, mutual funds, hedge funds and insurance companies — and family offices that are showing signs of returning to the market as fundamentals have improved. The new shares, called Class L and Class L-2, offer lower fees for high-dollar contributions. With $250 million minimums, the Class L-2 shares represent one of the most expensive entry thresholds in the nontraded REIT sector.
The launches signal Blackstone REIT's push to maintain fundraising as nontraded REITs recover. By diversifying its investor base and product offerings, Blackstone REIT positions itself to capture capital across wealth tiers and investment motivations, according to analysts.
"Since inception almost nine years ago, Blackstone REIT has provided investors exposure to high-quality, institutional real estate," Blackstone said in a statement emailed to CoStar News, pointing to a 9.2% annualized net return on its Class I shares aimed at institutional investors.
The programs, it added, "expand access and increase the opportunities for investors to benefit from Blackstone REIT's well-positioned portfolio."
Blackstone REIT's owned properties are concentrated in the sectors currently dominating the investment scene — data centers, rental housing and logistics.
Buy-and-hold investments
Under the Delaware Statutory Trust program, Blackstone REIT sells beneficial interests in trusts holding individual properties. The benefits are twofold: 1031 investors can defer capital gains taxes by rolling proceeds into Blackstone REIT properties while gaining fractional property ownership without management duties. DST programs are now available through 11 nontraded REIT sponsors, according to investment banking firm Robert A. Stanger & Co.
Nontraded REIT fundraising through common shares has totaled $4.4 billion this year, according to Stanger & Co. data through September. That is down from $33 billion to $34 billion in 2021 and 2022.
Meanwhile, Delaware Statutory Trust offerings have raised $5.7 billion in the first nine months of the year, Gregory DiSalvo, a Stanger & Co. managing director, said. Capital flows in the DST market average about $7 billion per year.
"Blackstone would be expected to become a major player in DST fundraising with a program that ultimately gets merged into their flagship nontraded REIT after at least two years," DiSalvo told CoStar News in an email. "This strategy will give investors access to the largest diversified net asset value REIT with more than $50 billion of equity and a proven track record on managing redemptions of approximately $35 billion over the last four years."
Delaware Statutory Trusts are structured as long-term, buy-and-hold investments, typically with an initial holding period of five to 10 years before the underlying property is sold. Hence, investor capital is generally tied up for this entire period.
In addition, there is no redemption guarantee, unlike shares in a nontraded REIT. The Delaware Statutory Trust sponsor is not obligated to buy back an investor's interest.
Neither Schmidt nor DiSalvo has direct ties to Blackstone REIT, and Blackstone REIT didn't respond to CoStar News' requests for comment on their takes.
Multimillion-dollar minimums
Blackstone REIT's new Class L and Class L-2 shares are designed to attract large investors by offering reduced management fees. Class L shares require a minimum investment of $50 million and carry a 1% annual management fee.
Class L-2 shares demand a $250 million minimum. Management fees drop to 0.85% annually, according to the REIT's regulatory filing. Both rates undercut the 1.25% fee on existing share classes.
Blackstone is the first nontraded REIT to introduce this type of share structure, according to DiSalvo. The shares are designed to attract investment funds that have been on the sidelines.
Institutions that have trimmed their real estate investments are expected to increase target allocations next year, according to a report from advisory firm Hodes Weill & Associates published last month in partnership with Cornell University.
Sentiment has been improving, according to the report, bolstering renewed expectations.
Investors surveyed by Hodes Weill cited greater clarity on interest rate trajectories and stabilizing market fundamentals as drivers of renewed confidence, viewing the next several years as a good entry point for capital deployment.