Blackstone REIT (BREIT) Questionable Valuations

Blackstone REIT (BREIT) Securities Investigation

The White Law Group continues to investigate potential securities claims involving Blackstone REIT (also known as BREIT).

An opinion piece in Investment News today raises questions about the valuation practices of Blackstone Real Estate Income Trust Inc. (BREIT). Nontraded REITs often rely on internally determined valuations, leading to opacity and potential discrepancies in value. Despite concerns about the broader commercial real estate market, BREIT’s net asset value (NAV) has remained high, raising eyebrows in the industry.

Media outlets like The New York Times and Business Insider have published critiques of BREIT’s valuation and long-term sustainability. The skepticism stems from the discrepancy between BREIT’s seemingly resilient valuation and the challenges faced by other real estate funds in the post-pandemic economic landscape.

Questions have been raised about BREIT’s ability to maintain such high valuations, especially given the market conditions and the timing of its property acquisitions.

BREIT Tender Offer Price is 38% Below NAV 

Blackstone Real Estate Income Trust (Blackstone REIT) is a public non-listed REIT associated with the prominent private equity firm, The Blackstone Group (NYSE: BX) is “designed to provide individual investors with access to Blackstone’s leading institutional real estate investment platform,” according to its website. 

Last October, MacKenzie Capital Management LP extended a min-tender offer to shareholders of Blackstone REIT (BREIT) to purchase Class S common stock shares for $9.27 per share. 

In a letter addressed to BREIT shareholders, “The share repurchase program is oversubscribed. If you submitted each and every month over the past 6 months, you would have redeemed about 90% of your shares, and about 97% over the past year, which leaves thousands of investors like you trapped in an investment they cannot liquidate completely or quickly.” 

As we have previously reported, Blackstone REIT, for the first time in its six-year history, began imposing restrictions on fulfilling redemption requests in November 2022. This decision came after an influx of redemption requests from investors surpassed the 5% quarterly limit based on the company’s net asset value. Although redemption requests continued to exceed this limit in subsequent months, they have gradually decreased in recent times. 

MacKenzie’s offer is to acquire up to 1.5 million shares, amounting to $13.9 million, and is set to expire on December 11, 2023. 

Tender Offer Price May Indicate Losses for BREIT Shareholders  

The offered purchase price represents a substantial 38% discount when compared to BREIT’s estimated net asset value of $14.88 per Class S Share as of August 31, 2023. Notably, BREIT shares have recently traded at a 4% discount to NAV on LODAS Markets, an online secondary market specializing in non-traded alternative investments. 

The Risks of Investing in Non-traded REITs  

If you invest in non-traded Real Estate Investment Trusts (REITs), such as Blackstone REIT, it’s essential to be aware of the potential risks, especially when certain economic and market factors are in play. 

Consider the impact of high-interest rates. As an investor, you should know that non-traded REITs often rely on borrowing to finance property acquisitions and improvements. When interest rates rise, borrowing costs increase, potentially squeezing the REIT’s profitability and its ability to distribute dividends to investors. This situation might make the investment less appealing, especially in a rising interest rate environment. 

Furthermore, non-traded REITs often focus on specific geographic regions or property types, such as suburban office buildings or certain markets. This limited diversification can make these REITs more vulnerable to local economic conditions and trends. If a particular market or property type experiences a downturn, the overall performance of the REIT might suffer. 

Also, keep in mind the issue of liquidity. Non-traded REITs typically have less liquidity compared to publicly traded REITs. If you invest in non-traded REITs, you might find it challenging to sell your shares quickly, and you could face restrictions on when and how you can exit your investment. In uncertain market conditions or when the investment outlook is less favorable, this lack of liquidity can become a risk, as you may not be able to access your capital easily. 

Non-traded REITs are known for their opaque valuation practices. Unlike publicly traded REITs with readily available market prices, non-traded REITs typically provide periodic valuations that may not accurately reflect current market conditions. As an investor, it can be challenging to assess the true value of your investment, particularly during turbulent times.

Class Action vs. Individual FINRA Arbitration Lawsuit 

People often wonder whether a large class action lawsuit is a better litigation option for them than an individual FINRA arbitration case.  The answer depends on many factors, but typically if the loss sustained is large (say larger than $100,000), an individual arbitration claim is likely a better option.  Class actions as a recovery option are more appropriate for grouping large numbers of individuals who have small claims – too small to generally pursue individually. 

Recovery of Investment Losses – Blackstone REIT

The White Law Group is currently investigating potential claims against brokerage firms who may have unsuitably recommended BREIT and other non-traded REITs to investors. 

These claims result when broker-dealers fail to perform adequate due diligence on the investments before offering them for sale to their clients. Additionally, the brokerage firms often fail to determine whether the investments were appropriate in light of their clients’ age, investment, experience, net worth, and tolerance for risk. 

If you are concerned about your investment losses in Blackstone REIT (BREIT) please call the securities attorneys of The White Law Group at (888) 637-5510 for a free consultation. 

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.