Blackstone's BREIT Under Scrutiny Amid Allegations Of Instability, But Some Claims Are Dispelled

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Blackstone Inc. created BREIT in 2017 to allow regular investors to invest in its real estate. The company called it a strategy to build long-term wealth across market cycles.

It grew quickly by offering an annual dividend of about 4% at a time when interest rates were close to zero.

BREIT focuses on industrial, student housing and data centers in Sun Belt markets. About 70% of its $59 billion portfolio is concentrated in Southern and Western states and is 95% occupied.

But according to a Business Insider article, BREIT may not be as solid an investment as Blackstone portrays it.

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CRE Analyst dove into Business Insider's claims to determine whether the publication accurately depicts the BREIT, a private fund of non-traded real estate investment trusts (REITs). It verified Business Insider's assertion that BREIT failed to generate enough cash flow last year to cover its annual dividend, but found other of the publication's claims misleading.

While the claim, that some investors are questioning whether BREIT isn't the "rock-solid" investment Blackstone says it is, is true, CRE Analyst points out that the sources quoted in the article either sell their services or compete with Blackstone. One of Blackstone's biggest competitors is KKR, Business Insider's largest investor.

Business Insider says veteran analysts, accountants and investors have told it that BREIT is a "house of cards … because the returns the fund claims it has delivered depend almost entirely on BREIT's own estimates, which skeptics believe are wildly inflated."

CRE Analyst says the article's claim that when BREIT faced a flood of redemption requests from investors, it only fulfilled them after raising funds from new investors is misleading. Rather, BREIT generated liquidity by bringing in preferred equity investment from a big investor, CRE Analyst reported. The problem with preferred equity, the CRE Analyst said, is that it subordinates common equity behind a debtlike investment.

Business Insider's statement that it's impossible to know how valuable BREIT is because it's not publicly traded and its price per share is set by Blackstone rather than the market is true. Investors buy shares in BREIT based on their confidence in Blackstone's investing savvy and its reports of its own performance, which is an exercise in trust.

"…which is why track record and experience are such important points of focus for investors," CRE Analyst said.

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