Blackstone Real Estate Income Trust (BREIT): Review
Category: Non-accredited investor funds
Honors: Top core-plus funds
IMPORTANT COVID-19 UPDATE: this info was posted before anyone knew we would be facing a global pandemic in the spring of 2020. So it may be missing crucial information necessary to making an effective investment today. Some of the information in it may be dated, no longer accurate and/or irrelevant. For information on analyzing investments in this new era, see: "How will Covid-19 / Coronavirus Affect my Alternative Investment Portfolio?"
Update 2018-05-11: Blackstone reports that it's leverage has increased from below-average 41% to above average 60% (average for core plus is 50%). And apparently this is the new target. So this review has been updated with that information.
Blackstone is the 1000-pound gorilla in any real estate room. They've been around for over 26 years and manage a mind-blowing $104 billion of real estate assets. Their portfolios currently hold over 53,000 multifamily units, 197,000 hotel units, 43 million ft.² of retail, and 24 million ft.² of industrial properties.
The Blackstone Real Estate Income Trust is a rare bird as well. It's one of the few core-plus strategy funds that many institutional investors feel should be part of the bedrock of a real estate portfolio (along with core).
Core/core plus funds outperform other strategies over the long-term, by using conservative techniques and leverage. This returns lower in boom times, but holds up much better in bad. The fund is currently returning 5.79% net in distributions, and 10.9% net in total return (distributions + price appreciation), as of May 2018. (About 65% of the distribution was shielded from taxes last year by depreciation).
Even though the fund was only started in January 2017, it's already well diversified in a way that only a company like Blackstone could pull off. As of March of 2019 it's already in 491 assets across geographies and asset classes, totaling a crowdfunding industry record-setting $11.9 billion in assets under management (AUM).
The lockup and withdrawal are also one of the best in the industry. You can even withdraw your money in the 1st year, although you will pay a 5% penalty. After that there is no penalty at all. And you can redeem in any month. They also charge no acquisition or management fee. (See the competitor matrix for a list of all fees).
Leverage is conservative by non-accredited investor standards at 60% (although above the average of accredited investor core-plus funds at 50%).
One possible downside for some is that the BREIT does not allow in every non-accredited investor and has income requirements. These are much lower than accredited investor standards, but still will be too high for some.
Investors must have either:
a net worth of at least $250,000
a gross annual income of at least $70,000 and a net worth of at least $70,000.
Also, certain states have additional suitability standards.
Some might argue that BREIT's extreme popularity has now become a negative (or may become one in the future). When a fund grows too large, it can no longer make medium and small purchases (since they no longer move the needle). Instead it can only purchase large deals. This may cause them to compete with public REITs and they may find it difficult or impossible to purchase properties at the same discount as before. If so this may negatively affect future performance.
As an example, BREIT announced in June of 2019 that they completed the largest private real estate transaction ever which some might not view positively.
There are four classes of shares: S, T, I and D. The class S and class T shares have very high fees, taking away 8.75% of the return in sales commissions alone. In my opinion, this is out of line for a conservative investment that doesn't yield that much, and I personally would not to invest in any investment doing that.
On the other hand, class I and class D have much lower fees. Class I is the cheapest and best on fees, but normally requires a $1 million minimum. Thankfully, The Real Estate Crowdfunding Review Investor Club has found a firm that will allow club members to access the no-share-fee class-I shares without the usual $1 million minimum).
The other downsides are more minor. It has a higher $2500 minimum investment (versus $1000 average). And it also has a hurdle and split fee structure, which many competitors don't have/charge (5% preferred return, 75.5% investor/12.5% sponsor split with a high watermark).
But overall those are minor quibbles. For non-accredited investors who do qualify, this is a very strong offering. And it's one of the few non-accredited offerings that's competitive and potentially compelling to accredited investors as well.
Advantages: implements a difficult to find core-plus strategy, conservative leverage, seems to be achieving benchmark, good diversification, typical to excellent fee structure in most areas.
Disadvantages: Not all nonaccredited investors will qualify. Higher than usual minimum investment ($2500 versus $1000 average), Charges a promote fee via up preferred return and waterfall (5% preferred return, 75.5% investor/12.5% sponsor split with high watermark) compared to many competitors that don't. Large size may mean the end of the older discounted purchases at some point.
Accolades: one of the top funds in core-plus strategy
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About Ian Ippolito
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Ian was impressed by the potential of real estate crowdfunding, but frustrated by the lack of quality site reviews and investment analysis. He created The Real Estate Crowdfunding Review to fill that gap.
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