Blueprint: Blackstone’s gated REIT, real estate selloff begins, Oak Street’s first mega-fund

Blackstone's gated private REIT is a sign of things to come as investors seek liquidity; PERE's latest deep dive shines a spotlight on the beginnings of a real estate selloff as the markets reckon with volatility; Oak Street turns net lease fundraising heavyweight with the first closing of its maiden mega-fund; and more in today's briefing, exclusively for our valued subscribers.

They said it

“We do pipeline deals weekly. The tone of those calls has changed”

Laura Hines-Pierce, co-CEO of Hines, told PERE in an interview how today’s uncertain environment has led to her firm’s investment meetings becoming more research centered. Read the full interview here.

What’s new?

What a difference a quarter makes: Jon Gray’s Blackstone faces the first major challenging period of its relatively young REIT’s life. The New York firm was forced to gate the fund, sparking expectations others will follow. (Source: REIT)

A selloff for Blackstone
A little more than five years ago, New York-headquartered real estate giant Blackstone shifted a paradigm of thinking in the real estate market with the launch of its non-traded real estate investment trust BREIT. The fund’s total assets have grown rapidly since, currently measuring more than $125 billion, and last year, Blackstone was averaging $2 billion a month in commitments into the fund.

However, this week’s announcement that a clause in the fund documents has triggered a gating on redemptions has caused some concerns for this darling of the private real estate market. In October, Blackstone exceeded its monthly limit of 2 percent of the vehicle’s total net asset value ($69 billion as of the end of Q3) and its quarterly threshold of 5 percent. Reports suggest that the majority, as much as 70 percent, of the redemptions came from Asia. One partner in the fund told the Financial Times that the poor recent performance of Asian markets has put pressure on investors.

The consternation from the wider financial markets could result in more entrants to the redemption queue as BREIT’s stock value tumbled as a consequence. Reuters reported a drop off of around $8 billion in market capitalization over the weekend. The firm has recouped some capital with the sale of its 49.9 percent stake in two Las Vegas hotels for around $1.27 billion, plus it has cash reserves believed to be in the $11 billion range, the Reuters report said. Whether more of a sell-off is to come hinges on the next round of monthly valuations.

Make no bones about it, this is not a Blackstone-specific issue. US rival Starwood too has gated its non-traded REIT, Starwood Real Estate Income Trust, after redemption requests reached 3.2 percent of the REIT’s net asset value, news service Barrons reported. Others will likely follow as this trend kicks off.

The starting point for a sell-off
Like BREIT, many institutional open-end real estate funds are similarly facing growing exit queues, raising the prospect that the funds’ sponsors could likewise gate the vehicles. While that has yet to happen, open-end funds are expected to be among the most pressured parties to sell assets, according to Steven Cowins, co-chair of law firm Greenberg Traurig’s global real estate practice.

“If you look for who is going to be pushed to sell now, they’re going to be the start of it,” Cowins says in PERE’s December 2022/January 2023 cover story. “And obviously, once those assets reprice, then it causes a ripple through the rest of the market.” Open-ended funds, however, represent just one segment of a wider universe of direct and indirect real estate owners that are under pressure to sell. For the full story, click here.

The Blackstone of net lease
Also like Blackstone, Oak Street is already known as a fundraising heavyweight, ranking as one of the top 25 firms in this year’s PERE 100. With its latest real estate fund, however, the Chicago-based manager has cemented its position as the 800-pound gorilla of the net lease space. Oak Street is on pace to raise its first mega-fund for the strategy with Oak Street Real Estate Capital Fund VI, which is expected to hit its $5 billion hard-cap when it reaches its final close by Q1 2023. As such, the vehicle is poised to be the largest net lease fund ever raised. With Fund VI added to PERE’s tally of dedicated net lease funds, Oak Street has now raised $12.9 billion, or 77 percent, of the $16.7 billion gathered across 16 closed or open-end vehicles for the strategy – including the top four largest funds on the list, according to PERE data. Check out our coverage of the fundraise here.

Trending topics

The right interval
While the non-listed real estate investment trust section of the market faces some major challenges, one prominent manager is looking to take advantage of another capital markets niche. Pacific Investment Management Company, based in Newport Beach, California, has launched an interval fund as part of its suite of vehicles: the PIMCO Flexible Real Estate Income Fund. PIMCO becomes the first private manager on PERE’s top 100 list to launch this type of fund, after firms like BlueRock and Versus paved the way. The structure is similar to a mutual fund, with investors allowed to sell their shares back to the manager. However, this occurs on a quarterly as opposed to a daily basis, making it more illiquid but avoiding the risk of a “run on the banks” being seen in the non-listed REIT space.

The vehicle will be overseen by a six-person investment committee that includes group chief investment officer Dan Ivascyn and Cristoph Donner, chief executive of the US for Allianz Real Estate. PIMCO will invest in both public and private real estate using the capital and will invest across the capital stack, per an announcement. “The extraordinary re-pricing of assets across financial markets this year has created what we think are some of the most attractive investment opportunities in more than a decade,” Ivascyn said.

Color coded
A prevailing theme of the current real estate market is bifurcation. One area of keen concern is assets affected by environmental considerations. Speaking at parent company PEI Group’s Women In Private Markets Summit, Sophie van Oosterom, global head of real estate at London-based Schroders Capital, said there is a bifurcation in pricing, specifically that there is a “green premium” arising on the best assets while a “brown discount” is on the horizon but has not worked through the system yet.

The latter is more clear in the debt markets, said Alice Cavalier, partner and co-head of capital solutions at London-based private debt firm Arcmont Asset Management. “You can clearly see it,” she said, noting that there are fewer and fewer active lenders in the market. As that filters through to other parts of the market, there is a sense a “carbon bubble” could form. “There is a bubble in more secondary-type assets that are no longer the right assets for the future,” van Oosterom said. Read our full coverage here.

PERE Global Awards voting launch has been delayed

Voting for the 2022 PERE Global Awards has been postponed by one week due partly to the high volume of submissions. However, we also have noticed that many organizations failed to follow our awards guidance in putting together their submissions, including listing achievements that did not fall within the qualifying time period. This has created delays in the processing of submissions, so we would stress the importance of following our awards guidance carefully to avoid delays with voting launches in the future.

The launch of the awards will now be on Wednesday, December 7. The end of the voting period will remain Monday, January 9, 2023.

Data snapshot

A long road backTo get a sense of the uphill battle the market faces after the ongoing repricing, Oxford Economics has forecasted the return of capital values from the end of 2021 as a benchmark. Every sector faces a sharp decline in values in the medium term but none face a longer road back than office, which may have to wait until at least 2030 to see values return close to the current levels.

People moves

Ivanhoé Cambridge loses long-serving CIO
Ivanhoé Cambridge’s chief investment and innovation officer Sylvain Fortier [his LinkedIn here] has stepped down from his role after more than 18 years at the Montreal-based firm. During his 11 years at the real estate investment arm of Caisse de dépôt et placement du Québec, Fortier was responsible for developing real estate strategies and managing the funds and capital partnerships that allowed the firm to execute on deals. Before the pension spun out a separate entity, he spent seven years on CDPQ’s real estate team. In his farewell note, Fortier acknowledged the transition of the real estate industry throughout his career, where he has witnessed “a major financial crisis, a global pandemic coming to an end, and have seen first hand the accelerated emergence of online commerce, and the work-from-home reality.” A successor has not yet been named.

PGIM’s data center ambition
Newark, New Jersey-based PGIM Real Estate continues to commit to its data center strategy, hiring a former Amazon Web Services executive to join its expanding team. James Footh [his LinkedIn here] has been appointed as a managing director on the firm’s global data center investments and portfolio management team. Footh will oversee acquisitions and manage PGIM’s existing and future portfolio of assets. Based in Seattle, he will report to the firm’s head of Japan and global head of data center investments, Morgan Laughlin. Laughlin said in a release that there is a need for “real estate investors to incorporate digital infrastructure investment strategies into their global portfolios” due to the “long-term and sustained growth in demand” for the property type.

Investor watch

Shopping spree
Singaporean sovereign wealth fund GIC continues its buying spree with its third acquisition of a North American REIT in as many months. Its latest target: New York-headquartered Indus Realty Trust. The investor has partnered with private real estate manager Centerbridge to acquire an 85.2 percent stake in the industrial-heavy REIT for $660 million. The Indus portfolio includes 42 industrial and logistics buildings across the US. Last month, the firm partnered with Dream Industrial REIT to acquire Canadian Summit Industrial Income REIT. In September, it joined hands with Chicago-based Oak Street to acquire net lease REIT STORE Capital for $14bn.

This week’s investor meetings

Tuesday, December 6

Wednesday, December 7 

Thursday, December 8

Friday, December 9

Today’s letter was prepared by Peter Benson with Jonathan BrasseEvelyn Lee, and Christie Ou contributing