Investors Head for the Exits at Illiquid Funds: Blackstone Limits Withdrawals from Giant Real Estate Fund

By Pam Martens and Russ Martens: December 2, 2022 ~

Investors seem to be thinking a lot these days about that old Will Rogers maxim: “People should be more concerned with the return of their principal than the return on their principal.”

Investors have been demanding their money back from a growing number of crypto outfits and now that anxiousness is broadening out.

The latest to be hit with a surge in investor demand for their money back is the Blackstone Real Estate Income Trust (BREIT). Unlike most REITs, BREIT doesn’t trade on a stock exchange. Investors have to ask the trust to buy back their shares when they want their cash back.

According to an announcement posted at the Blackstone website, it has begun to limit withdrawals. In November, investors only received 43 percent of the withdrawals they requested. The statement explains:

“BREIT received repurchase requests equal to 2.7% of NAV [Net Asset Value] in October, or approximately $1.8 billion, and received approval from its majority independent Board of Directors to fulfill 100% of repurchase requests. BREIT has now received repurchase requests exceeding both the 2% of NAV monthly limit and 5% of NAV quarterly limit, triggering proration for the remaining 2.3% of NAV for the quarter. Accordingly, BREIT repurchased approximately $1.3 billion in November, equal to its 2% of NAV monthly limit and approximately 43% of each investor’s repurchase request. In December, up to 0.3% of NAV will be eligible for repurchase to total 5% of NAV for the quarter. If BREIT receives elevated repurchase requests in the first quarter of 2023, BREIT intends to fulfill repurchases at the 2% of NAV monthly limit, subject to the 5% of NAV quarterly limit.

“Under the Repurchase Plan, unfulfilled repurchase requests will not be carried over automatically. Investors will need to resubmit any unsatisfied portion of their current repurchase request for repurchase in the future.”

Blackstone is apparently attempting to get more liquid in the fund in anticipation of more withdrawal requests. According to the Wall Street Journal, the fund is selling its 49.9 percent stake in the MGM Grand Las Vegas and Mandalay Bay to Vici Properties, which owns the remaining share of the properties. Under the terms of the deal, as reported by the Journal, Blackstone would receive $1.3 billion in cash with Vici also assuming Blackstone’s share of $3 billion in debt.

Gating a customer’s money is something that has rarely happened in the U.S. in recent decades – until the crypto cabal entered the investment arena. Now it’s becoming an almost weekly occurrence.

We put the phrase “halts withdrawals” into a Google news search box and up popped the following crypto names that had put up gates in the past eight months: FTX, Liquid Global, Genesis, Voyager Digital, Vauld, BlockFi, SALT, AAX, Gemini Earn, Celsius, and Terra (LUNA) network. For a number of those, the “gate” was the preliminary step prior to filing bankruptcy or liquidating.

Yesterday, the Chair of the Commodity Futures Trading Commission, Rostin Behnam, testified on the collapse of FTX before the Senate Agriculture Committee. In response to a question, Behnam said there had been “no contagion” from the FTX collapse.

That statement is simply not true. The majority of the gates that have gone up at other crypto firms have occurred since the FTX bankruptcy filing on November 11. BlockFi had major exposure to FTX and had to file bankruptcy 14 days after FTX filed bankruptcy.

The contagion has also spread to publicly-traded crypto mining stocks, many of which have dropped by double digits since FTX filed bankruptcy.

Publicly-traded federally-insured banks that also have major exposure to crypto have seen their share prices plummet since FTX filed bankruptcy on November 11. One of those banks, SoFi Technologies (parent of SoFi Bank) has dropped by 20 percent while Silvergate Capital (parent of Silvergate Bank) has lost 27 percent, including an 8 percent drop just yesterday.

And make no mistake about this: we are just in the first inning of this contagion.

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