With the beginning of a credit event triggered by the Federal Reserve's aggressive rate hike cycle, which has already claimed at least three smaller US banks and initiated an unprecedented surge in deposit bank runs, the commercial real estate market might be the next shoe to drop.
For the fifth consecutive month, Blackstone's $71 billion real estate income trust (BREIT) has restricted redemption withdrawal requests in March, according to Bloomberg, citing a letter from the PE firm.
Last month investment advisors of high-net-worth individuals asked Blackstone to redeem $4.5 billion from BREIT, but the PE firm only allowed $666 million to be withdrawn, or about 15% of what was requested. In February, advisors tried to pull out $3.9 billion.
Blackstone limits withdrawals to approximately 5% per quarter. Having already reached 2% monthly caps in January and February, investors were left with a much narrow exit route in March.
However, should rates keep rising, it is likely that the April redemption flood will continue.
BREIT is a huge player in the real estate industry, acquiring properties from student housing to apartment complexes and warehouses. The trust was first hit with redemptions limits last December.
The letter also noted BREIT reserved the right to limit redemptions to prevent massive outflows:
"This structure was designed to both prevent a liquidity mismatch and maximize long-term shareholder value, and is working as planned," the letter to investors said. "In fact, BREIT has paid out nearly $5 billion to redeeming shareholders since November 30."
A reason for the concern and stampede to the exit is the prospect of commercial real estate being the next area of turmoil following the regional banking crisis.
Professional subs have been well aware of these rumblings in two latest pieces, "Hartnett: Commercial Real Estate Is The Next Shoe To Drop" and "State Of Commercial Real Estate: Goldman Expects Sharp Spike In Office Delinquency Rates."
Since the Federal Reserve initiated its interest rate hiking cycle, US office REITs have been battered.
And recall last month, Blackstone defaulted on a €531 million ($562 million) bond backed by a portfolio of offices and stores owned by Sponda Oy, a Finnish landlord it acquired in 2018.