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Markets Work - Just Ask Blackstone Private Real Estate Fund

Yesterday Blackstone announced they were limiting withdrawals from the Blackstone Real Estate Income Trust (BREIT). The fund is not publicly traded and has contractual limits on redemptions. At the end of November, the fund’s redemption requests exceeded the fund agreement thresholds triggering caps on distributions going forward.

On November 1st I traded emails with my sons, two of whom work in finance and the other who works in real estate. My email included a blurb from Matt Levine’s column that noted the significant performance disparity between publicly traded REITs and non-traded REITs like BREIT. At the time, BREIT had YTD performance of 9.3% while the NAREIT index was down 25%. I opined in my email that it seemed implausible that such a significant pricing delta could continue, and I questioned BREITs mark to market process.

I wasn’t the only one thinking things seemed amiss. Apparently, many investors in BREIT reached the same conclusion and decided to cash out to capture the favorable pricing dislocation, or so they hoped.

One of our fundamental investment tenets is “markets work.” What’s occurred with BREIT this week only serves to reinforce that belief. Prices, like water, find their level.