Join us for a 2-week free trial and get access to all my highest conviction investment ideas. Today, he is the author of " High Yield Landlord” - the #1 ranked real estate service on Seeking Alpha. Jussi Askola is a former private equity real estate investor with experience working for a +$250 million investment firm in Dallas, Texas and performing property acquisition in Germany. Instead, capital is just flowing from a less attractive opportunity (BREIT) into better ones (Public REITs). The takeaway is that both Blackstone and BREIT are just fine. Many investors are coming to this same conclusion and it is causing them to exit vehicles like BREIT. I recently also had a Twitter exchange about this with a BREIT investor: Why would you pay a premium to buy an illiquid, externally-managed REIT like BREIT, when you could buy a liquid, internally-managed REIT like AvalonBay ( AVB) or EastGroup Properties ( EGP) at a steep discount? This explains why Blackstone has been buying out public REITs in 2022 instead of buying private properties in many cases. The best opportunities today are clearly in the public markets on the screen and that's where we're spending a lot of time. Even Blackstone itself noted on a recent public call that public REITs are today more opportunistic than private real estate (or BREIT.): There are many similar or even better public REITs that are now priced at a large discount relative to what you would pay for BREIT. Jonathan Litt recently pointed this out in a Tweet: It is simply because investors realize that public REITs are today a lot cheaper than BREIT and so they are selling it to redeploy in discounted public REITs. The reason why there are so many withdrawals is not because BREIT is in danger. So all in all, we think that the fears are way overblown and this is likely in large part because of all the fear-inducing media headlines. Therefore, BREIT won't become a forced seller either. Their immediate liquidity was $9.3 billion before selling the rest of its interest in the MGM Grand and Mandalay Bay to VICI Properties ( VICI), which will give it another $1.27 billion. ![]() Blackstone has actually sold about $2 billion worth of assets at a nearly 10% premium to the carrying value of these assets, which shows that its NAV is quite conservative.įinally, BREIT has ample liquidity to gradually meet redemptions and a structure to prevent liquidity mismatches. Right now, their rental housing and their industrial portfolio is valued at a 5.4% cap rate, which is quite conservative in my opinion, and I think that any material cap rate expansion from here is very unlikely. Their debt is also almost entirely fixed rate for the next 6.5 years and therefore, the positive impact of rising rents should be superior to the negative impact of rising interest expense. This provides a bank of future growth as leases expire and rents are hiked: Moreover, they expect the strong rent growth to continue because their current rents remain well below market levels.
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