Blackstone is limiting redemption requests after breaching limits this quarter for its $69 billion real estate fund for wealthy individuals. The FT is also reporting that Blackstone is limiting investor withdrawals at its larger $125 billion real estate fund. The limit comes on the back of a jump in redemption requests from investors looking to take cash from private assets (like real estate).
Earlier today is reported that Blackstone sold its stake in the MGM Grand and Mandalay Bay for $5.5 billion. The good news is that they made a profit of 700 million in less than three years. The bad news is we don't know what the marked to market profit was coming into 2022. I am sure it was much higher. The gain was only 12.7%.
The company is likely selling off some big assets in order to fund the redemption requests. That could be a problem with illiquid assets in declining markets like the real estate market, but if they restrict redemptions, the investors assume the risk (until that time they can redeem again). Blackstone buys time by restricting the redemptions, that allows them to sell off other assets (if they can).
Firms like Blackstone snatched up real estate during the pandemic decline, and started to raise rents in 2021 and into 2022. That was a contributor to the higher inflation and the knock-on impact on inflation throughout the economy.
Now with rates higher and prices falling, the high net worth investors want out. However, that is not as easy as buying into a rising market.
The real estate market remains vulnerable as a result of higher rates and affordability issues. Were it not for restrictions on redemptions, the house of cards could start to unravel faster.
Kinda like the Feds soft landing in the overall economy where inflation comes down without unemployment moving too high, the soft landing in the housing market where overleveraged investors can exit without too much pain, is a hope given high rates, and lack of demand.
Time will tell, but it will be tough maneuver to exit.
