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Real Estate Funds Vs Reits: Whats The Difference
Yes, real estate funds and REITs both invest in real estate. But no, they are not the same thing.
As noted above, a real estate fund operates just like any other mutual fund, in that youre pooling your money with other investors and sharing in the fund returns. You can invest in a real estate fund through an online brokerage, paying a flat expense ratio to own the fund each year.
An REIT is different its a corporation that invests directly in income-generating real estate and is traded like a stock. These trusts can take either a broad or narrow approach to their holdings. For example, Boston Properties invests primarily in office space in major markets like San Francisco and New York. Realty Income , on the other hand, invests in commercially leased properties that span different industries.
The way returns are delivered to investors differ, too. With a mutual fund, investors can realize profits from price fluctuations, assuming they buy the REIT at one price and sell it at a higher price. Some real estate funds can also pay out dividends to investors periodically.
Blackstone Targets $25b For Real Estate Fund To Beat Inflation
The giant investment manager has raised money from the Teachers Retirement System of Louisiana, the Arkansas Teacher Retirement System and the Oklahoma Teachers Retirement System, IPE Real Assets reported.
Blackstone Real Estate Partners X has an equity target of $25B and will invest primarily in North America, although some of its equity will flow into Europe and Asia.
The fund would be the largest real estate vehicle in history if Blackstone hits its fundraising target. The company raised $20.5B of equity for its last global fund in September 2019.
That fund has made $21B worth of investments, including debt. It has sold $6B of those assets and is on track to make a 1.9% multiple on invested capital from its investments and a 47% net internal rate of return. Blackstone has $298B of real estate assets under management.
After the companys first-quarter results in April, Chief Operating Officer Jon Gray said that high inflation, rising interest rates and the lagging economy make the investment environment highly unpredictable.
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Tips For Investing In Real Estate Funds
- When considering a real estate fund, research the funds past performance, its underlying assets, whether its diversified or non-diversified, and how actively or passively its managed. Also pay attention to the expense ratio. Remember, the lower the expense ratio, the more of your returns you get to keep. Finally, look at the age of the fund and the fund managers track record before investing.
- Consider talking to a financial advisor to get detailed insight into investing in real estate funds and how they can figure into your overall retirement savings plan. Not only can an advisor help you determine if real estate is a crucial missing piece in your portfolio, but they can also point you to which funds best suit your goals.
- If you dont have an advisor yet, finding one who fits your needs doesnt have to be difficult. SmartAssets free tool matches you with financial advisors in your area in just 5 minutes. If youre ready to be matched with local advisors who will help you achieve your financial goals, get started now.
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Blackstone Quarterly Webcast: The Ten Surprises of 2021
In this edition of the Surprises a series Byron has been publishing since 1986 the strategists outline unexpected events that could shape the political, economic and financial landscape in 2021.
Joe Zidle: Portfolio Rethink for a Stronger Recovery
The current bull market is the product of plentiful liquidity from generous fiscal stimulus and lax monetary policy. But these dynamics will change as the economy reopens, COVID stimulus ends, and rates climb higher. Investors should be prepared.
Income: A Scarce Resource
Fund Known As Breit Has Scooped Up Rental
A group that included the Blackstone Real Estate Income Trust last year acquired the real-estate assets of the Las Vegas Cosmopolitan casino and hotel in Las Vegas.
The largest fund administered byBlackstone Group Inc., the giant investment firm known for raising capital from institutions such as pension funds and endowments, is now one that mostly targets individual investors.
Blackstone Real Estate Income Trust, a fund sold in increments as little as $2,500, has raised more than $50 billion since it started five years ago. The firm has used the fund, known as BREIT, to buy rental-apartment buildings, warehouses, office buildings, casinos and other property types.
Like other funds structured as nontraded real-estate investment trusts, BREIT experienced a decline in fundraising in the early months of the Covid-19 pandemic. But by mid-2020, the pace had picked up, and last year BREIT raised an average of more than $2 billion a month, or close to a 70% share of all the money invested in 2021 in nontraded REITs.
This exceeded even our own lofty expectations, said Jonathan Gray, Blackstones president and chief operating officer.
Warehouses, including one in Northern California, are among the acquisitions made by the Blackstone Real Estate Income Trust.
You would think over time the market would spread out,” said Kevin Gannon, Stangers chief executive.
If we dont generate strong returns, we dont get paid as much, Mr. Cohen said.
Write to Peter Grant at
United Nations Condemnation Of The Invitation Homes Project And Lobbying Efforts
In 2019, a United Nations report found that Blackstone’s massive purchasing of single-family homes after the financial crisis of 20072008 had “devastating consequences.” The report alleged that Blackstone had abused tenants with exorbitant fees, rent hikes, and aggressive eviction practices, and that Blackstone’s real estate practices had a disproportionate impact on communities of color, in part because the company targeted foreclosures resulting from subprime loans.
The report also condemned Blackstone for “using its significant resources and political leverage to undermine domestic laws and policies that would in fact improve access to adequate housing.” Blackstone spent at least $6.2 million to defeat California’s Proposition 10, which would have allowed cities to enact rent control. Blackstone is a member of the Real Estate Roundtable, a special interest group which spends millions on lobbying and political donations every year.
United Nations housing rapporteurLeilani Farha and Surya Deva, chair of the UN Working Group on Business and Human Rights, criticized Blackstone’s business practices, including frequent rent increases and “aggressive” evictions, for contributing to the global housing crisis. Blackstone disputed these claims.
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Initial Public Offering In 2007
In 2004, Blackstone had explored the possibility of creating a business development company , Blackridge Investments, similar to vehicles pursued by Apollo Management. However, Blackstone failed to raise capital through an initial public offering that summer and the project were shelved. It also planned to raise a fund on the Amsterdam stock exchange in 2006, but its rival, Kohlberg Kravis Roberts & Co., launched a $5 billion fund there that soaked up all demand for such funds, and Blackstone abandoned its project.:221223
In 2007, Blackstone acquired Alliant Insurance Services, an insurance brokerage firm. The company was sold to Kohlberg Kravis Roberts in 2012.
On June 21, 2007, Blackstone became a public company via an initial public offering, selling a 12.3% stake in the company for $4.13 billion, in the largest U.S. IPO since 2002.
A Behemoth Among Asset Alternative Managers
Blackstone is the world’s largest asset manager. It has $881 billion of assets under management across four key areas: real estate, private equity, hedge fund solutions, and credit and insurance.
Real estate is its largest focus area, with $279 billion of investor capital under management across a $514 billion global real estate portfolio. That makes it the global leader in real estate investing:
Data source: Company websites. Chart by the author.
Blackstone has been splurging on real estate over the past year, making several headline-grabbing deals:
- Data center REIT QTS Realty for $10 billion
- Single-family home rental platform Home Partners of America for $6 billion
- Industrial REIT WPT Industrial Real Estate Investment Trust for $3.1 billion
- Apartment-focused residential REIT Bluerock Residential Growth REIT for $3.6 billion
- Non-traded apartment REIT Resource REIT for $3.7 billion
- Apartment REIT Preferred Apartment Communities for $5.8 billion
- American Campus Communities for $12.8 billion
Several of these deals still haven’t closed yet. When they do, they’ll widen Blackstone’s lead over Brookfield Asset Management , Starwood Capital, and KKR .
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The Draw Of Investing In Private Real Estate
However, there are some drawbacks to being publicly traded. One of the biggest is exposure to stock market volatility. Because of that, REIT stock prices often decline during a broad market sell-off. Another drawback is that investors usually pay a premium for liquidity. As a result, publicly traded REITs often offer a lower dividend yield than non-traded REITs.
That gives private real estate investments several advantages over public REITs. They’ve historically produced higher income yields, making them ideal for those seeking to generate passive income. Meanwhile, they help provide even greater portfolio diversification because they reduce an investor’s correlation to the stock market.
Because of those benefits, private real estate investments have produced better risk-adjusted returns than public REITs over the last 20 years. That’s led more individual investors to look for ways to add private real estate to their portfolios.
Blackstone Funds Complete $13 Billion Acquisition Of American Campus Communities
Blackstone today announced that Blackstone Core+ perpetual capital vehicles, primarily comprising Blackstone Real Estate Income Trust, Inc. and Blackstone Property Partners , have completed the previously announced acquisition of all of the outstanding shares of common stock of American Campus Communities, Inc.
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Blackstone’s Success Is Driving Its Growth
Blackstone is one of the biggest names in real estate. Its thematic investing approach has enabled the company to deliver strong returns, which has investors entrusting it with more money. That’s allowing it to acquire more real estate, furthering its real estate dominance.
Matthew DiLallo owns Brookfield Asset Management. The Motley Fool owns and recommends American Campus Communities, Brookfield Asset Management, and KKR. The Motley Fool recommends Brookfield Asset Management Inc. CL.A LV and The Blackstone Group Inc. The Motley Fool has a disclosure policy.
Beware Blackstone Real Estate Funds
- Real estate is fundamentally performing well.
- BX exploits the discrepancy between how public and private performance are measured to imply extreme alpha.
- Looking for a helping hand in the market? Members of Portfolio Income Solutions get exclusive ideas and guidance to navigate any climate. Learn More Â»
Blackstone is among the worldâs most successful money managers but keep in mind that success in that world is not determined by the returns provided to investors, but rather by the magnitude of AUM.
Blackstoneâs 2Q22 earnings conference call revealed a company hellbent on raising AUM at all costs. They utilize a discrepancy in performance reporting between private and public to suggest an extraordinary amount of alpha to the tune of 3000 basis points. Fundamentally, however, their real estate fund performance was probably about in-line with public REITs.
Based on the tone of the call they seem to be making hay while the sun is shining â using the temporary alpha as a means to pump inflows. It is working as per the conference call where Jonathan Gray said:
âoverall in retail, we had $15.5 billion of inflows, very remarkable. In the 3 products, primarily BREIT and BCREDâ
This article is a warning that now is a terrible time to invest in BREIT, BCRED or most private real estate vehicles. Frankly, public REITs are a much better investment right now. I Will elaborate further below, but to summarize this argument consists of 3 premises
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What Blackstone Reit Fund Invests In
As of July 2021, BREIT has a total of 1,508 real estate properties located across the U.S. and a small percent in Europe.
This covers BREITs direct property investments, equity in public and private real estate-related companies, and unconsolidated investments. The unconsolidated investments come from their joint venture with MGM Growth Properties LLC, wherein BREIT owns 49.9% of interest.
Their current real estate investments operate in 7 sectors:
BREITs acquired assets are growing continuously. Despite the pandemic, they acquired worth $10.5B of real estate properties in the multifamily, industrial, and net lease sectors in 2020. As of June 30, 2021, their total properties were 1,463. Just a month after, it grew to 1,508 properties.
Blackstone Is Preparing A Record $50 Billion Vehicle To Scoop Up Real Estate Bargains During The Downturn Here’s How To Lock In Higher Yields Than The Big Money
Residential real estate is arguably the most valuable and accessible segment of real estate asset class. Its popularity has driven a disproportionate amount of capital into residential real estate particularly from institutional funds pushing up valuations and pushing yields lower.
Real estate investment giants continue to buy up homes something that is likely here to stay, even with higher mortgage rates. In fact, Blackstone is close to finalizing what could be the biggest traditional private-equity real estate investment fund in history, according to the Wall Street Journal.
In a regulatory filing last month, Blackstone said that it has secured $24.1 billion of commitments for its latest real estate fund called Blackstone Real Estate Partners X. Combined with Blackstones real estate funds in Asia and Europe, the company will have over $50 billion available for opportunistic investments.
In the event of a market downturn, Blackstone will have plenty of capital to scoop up some attractive real estate bargains.
But earning a good yield isnt easy in todays economic climate. The gross rental yield for a typical New York apartment is just 2.9%. The dividend yield on residential REITs is also mediocre.
Low single-digit yields are tough to swallow in an environment where interest rates are rising and inflation is at 9.1%.
Investors need to look beyond residential properties. Here are some niche REITs that offer better returns.
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Blackstones Giant Real Estate Fund Boasts A Strong Run But Can History Repeat
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Blackstone Real Estate Income Trust owns the real estate assets of Las Vegas hotels/casinos, including the Bellagio, above.
Blackstone Group is the worlds largest manager of alternative assets such as private equity and real estate. It is also a leader in one of the industrys biggest initiativesattracting retail investors.
What Type Of Company Is Blackstone
Description. Blackstone Inc. is an alternative asset management firm specializing in real estate, private equity, hedge fund solutions, credit, secondary funds of funds, public debt and equity and multi-asset class strategies. The firm typically invests in early-stage companies. It also provide capital markets services.
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Blackstone Has Raised $24b For Its Latest Real Estate Fund
Investor eyeing a record $30B haul
Blackstone says its close to finalizing one of the largest real estate investment funds in history.
The investment giant has raised $24.1 billion in the last three months for its latest opportunistic real estate fund, known as Blackstone Real Estate Partners X, it said in a regulatory filing Wednesday.
That capital, along with $300 million of Blackstones own money and an additional $5.9 billion it says its allocated to investors, would bring the pool to $30.3 million when completed making it the largest private-equity real estate investment vehicle ever assembled, according to the Wall Street Journal. The current record belongs to the funds predecessor, Blackstone Real Estate Partners IX, which raised $20.5 billion in 2019.
Combined with funds for real estate in Asia and Europe, Blackstone will have more than $50 billion available for opportunistic investments. Only about 12 percent of the fund has been invested, it said.
Blackstones $298 billion real estate portfolio has primarily focused on warehouses, multifamily and other rental housing, as well as hospitalityand life sciences. It has also been targeting private takeovers of REITs as market valuations remain volatile in the face of rising interest rates and inflation.
Disrupting The Private Real Estate Market
Blackstone created BREIT to address some issues with legacy non-traded REITs and provide individual investors with greater access to the private real estate market. It has been a smashing success. Investors have poured billions of dollars into Blackstone’s non-traded REIT to take advantage of its higher income yield and greater diversification benefits. Given its returns thus far, BREIT is worth a closer look for investors looking to add private real estate to their portfolios.
Matthew DiLallo owns Brookfield Asset Management. The Motley Fool owns and recommends Brookfield Asset Management and KKR. The Motley Fool recommends Brookfield Asset Management Inc. CL.A LV. The Motley Fool has a disclosure policy.
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Big Funds Get The Best Deals
Blackstone oversees two basic categories of funds, both of which tilt heavily to its four bedrock sectors. The original batch are the Blackstone Real Estate Partners vehicles that cater to big institutional investors such as Teacher Retirement System of Texas and the Florida State Board of Administration pension fund. The BREP suite makes adventurous bets with a short time horizon. Jon Gray, Blackstones president and chief operating officer, famously called the model buy it, fix it, sell it. The game plan: purchase distressed properties that are frequently run-down and empty or sparsely occupied, pump in capital to refurbish them, install a new management team, then aim to exit within five years pocketing a big capital gain, augmented by rising rents as the buildings fill with tenants. Since BREPs creation in 1994, Blackstone has launched 17 of the funds in the U.S., Europe, and Asia that net of fees, have generated average annual returns to investors of 16%. Today, the BREP group manages almost $100 billion in properties and dry powder cash, making them the worlds largest single class of real estate private equity funds.