Blackstone Announces Major Asset Liquidations As Redemption Requests For Its REIT Continue

Blackstone real estate investment trust (BREIT), which recently made news for exercising a clause that restricted owner withdrawals for several consecutive months, has not taken the news lying down. Blackstone’s opportunistic funds recently announced the sale of $3.1 billion worth of its industrial real estate portfolio. It also is rumored to be considering a sale of its Las Vegas portfolio.

Strength in the Industrial Sector

Although much of the real estate market has suffered this year, industrial and warehouse is still a subsector where there has been year-on-year growth. Blackstone is selling 70 assets out of its opportunistic funds to Prologis Inc. The deal includes roughly 14 million square feet and marks the continuation of a long-standing relationship between Blackstone and Prologis.

The sale, which is expected to be complete by the end of the second quarter, would be the latest in more than a dozen deals between Prologis and Blackstone in the last 11 years. All indications are that Prologis plans to buy and hold the assets, which would add 77 new customers to a portfolio that includes 50 customers.

More importantly, the deal points to continued resilience in the industrial/warehouse sector, even as many other commercial sectors stumble in this new environment. As of April, the national average lease rate for industrial space hit $7.18 per square foot — 7% higher than the price a year ago. Perhaps that’s why an estimated $12.6 billion worth of industrial real estate was sold in the first four months of 2023.

Nadeem Meghji, Head of Blackstone Real Estate Americas, said, “Where you invest matters, and this transaction demonstrates the exceptional demand for high-quality warehouses. With near record low vacancy, logistics remains a high conviction theme for us; we are proud owners of $100 billion of warehouses in North America and $175 billion in total around the world. And, of course, Prologis is a world-class company that knows this space as well as anyone.”

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Is Blackstone Looking To Raise More Money?

It’s no secret that Blackstone has been restricting owner withdrawals in its REIT for almost the entire year. With that in mind, it’s not hard to imagine it is under tremendous pressure to liquidate assets. Rumors are circulating that Blackstone may sell half of the $4.25 billion interest it acquired in the Bellagio Resort & Casino in Las Vegas in 2019.

If true, it would represent the liquidation of an asset that is performing well. The Bellagio is one of the more profitable operations on the Las Vegas Strip. It’s also still under the control of the owner who opened it — MGM Grand — and in the middle of a long-term lease. Those factors make Blackstone’s share an appealing asset that will likely have many suitors if it decides to put it on the market.

Blackstone has steadily been selling its casino assets in the last several years. It sold the Cosmopolitan hotel for $5.65 billion in 2021, which netted the company a profit of nearly three times its original investment. At the time, it was one of the most profitable transactions of its kind in history. In 2022, Blackstone sold 49.9% of its ownership of MGM Grand and Mandalay Bay.

What This Means For Real Estate Investors

Despite being one of America’s largest landlords, Blackstone is still navigating choppy waters. The fund is liquidating assets, but the reasons are not totally clear. All real estate funds sell properties, and these could have just reached the end of their investment cycles.

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Or it could be a case of Blackstone trying to liquidate some high-dollar assets before interest rates go up again, which will make these types of properties more difficult to liquidate in the future. 

There is a kernel of wisdom here for everyday investors. First, Blackstone will eventually bounce back and so will the real estate market. Second, the industrial and warehouse sector of real estate remains strong, as evidenced by the fact it has delivered increased returns for investors year on year. 

A Blackstone spokesperson said, "BREIT continues to deliver strong performance given its portfolio concentration in sectors like rental housing, logistics and data centers in the Sunbelt: 12% annualized net return since inception over six years ago, over 3x the public REIT index. We were pleased to see June repurchase requests decline meaningfully from the January peak."

If you’ve been looking to make a real estate investment but you’re spooked by the market, industrial and warehouse assets or REITs in the industrial/warehouse sector are worth considering. There is always opportunity in up or down markets if you know where to look.

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