Soured property bets put pressure on Wall Street buyout king Blackstone

Stephen Schwarzman, the chief executive of the world’s largest private equity firm, is not someone who takes kindly to criticism.

So when Blackstone was last month forced to limit investor withdrawals from its $69bn (£58bn) real estate fund, the combative billionaire came out swinging against his company’s detractors.

Amid interest rate rises, the 75-year-old rejected the idea that the restrictions reflected problems at the fund or in Blackstone more generally.

“The idea that there is something going wrong with this product because people are redeeming is conflating completely incorrect assumptions,” he said. “This was not meant to be a mutual fund with daily liquidity. These are pieces of real estate.”

“[We] are in a cycle where retail investors are less apt to be investing in things … [People] get scared. It is completely normal and not a concern. I look at this and say this is just a pause – an expected pause – of people pulling money out.”

But after a decade of free money, buyout barons are starting to sweat as rates climb higher and the economic outlook darkens, leaving some major players struggling to raise funds while acquisition financing is also drying up.

In Blackstone’s case, Schwarzman said the surge in withdrawal requests at its Blackstone Real Estate Income Trust (BREIT) was driven by Asian investors who tend to use high levels of leverage – borrowed money – to back positions. They needed to quickly offload assets to meet margin calls last year as property markets in the region went south.

Last month, Blackstone announced the sale of its stakes in the MGM Grand Las Vegas and Mandalay Bay Resort casinos in Las Vegas for $1.27bn. BREIT will use the proceeds from the sale to boost liquidity in order to meet redemption requests, according to reports. 

Blackstone is a major player in the US real estate market and grew rapidly in an era of low interest rates by snapping up private apartments, houses and college dormitories.

However, as interest rates climb, the fund’s fortunes have floundered. Wealth advisers are growing more cautious about client exposure to illiquid assets and investors across the board are trimming exposure to property as borrowing costs climb.


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