Blackstone Group (NYSE: BX) is a behemoth in the global private real estate market. The private equity giant's real estate arm, Blackstone Real Estate, is one of the largest owners, buyers, sellers, and financiers of real estate.
Blackstone Real Estate has more than $200 billion of investor capital under management across several real estate investment funds. One of those funds is the Blackstone Real Estate Income Trust, or BREIT, a non-traded real estate investment trust (REIT). Blackstone created BREIT in 2017 to offer income-focused investors access to the Blackstone real estate platform. It aimed to reimagine the non-traded REIT business model by making fees aligned with those paid by its institutional investors.
What is BREIT?
BREIT is a public non-traded REIT. That means it's registered with the SEC and open to all investors -- including non-accredited investors -- though shares don't trade on stock market exchanges. That has benefits and drawbacks. The primary advantage of investing in non-traded REITs is to reduce an investor's correlation to the stock market. Non-traded REITs derive their worth from the net asset value (NAV) of their underlying real estate, not what public market investors are willing to pay for shares on any given day.
What sets BREIT apart from many other public non-traded REITs offered by real estate crowdfunding platforms is that investors can't readily purchase shares through an online portal. The only way to invest in BREIT is through a financial advisor.
Those differences aside, BREIT shares a lot of similarities with diversified REITs. It doesn't take a pure-play focus on one asset class or geography. Instead, it takes a thematic approach, investing in its highest conviction ideas across the top 50 U.S. markets. Further, given its income focus, BREIT primarily invests in stabilized, income-generating commercial real estate and some real estate debt investments.
As of June 2021, BREIT's portfolio had more than $50 billion of assets comprised of 1,463 properties in the following categories:
- Multifamily: It owns 93,000 units that comprise 41% of its portfolio.
- Industrial: BREIT owns 154 million square feet of industrial real estate, primarily warehouse properties benefiting from e-commerce tailwinds. These properties make up 36% of its portfolio.
- Net lease: BREIT owns three iconic casino properties in Las Vegas -- Bellagio, MGM Grand, and Mandalay Bay -- secured by triple net lease agreements with MGM Resorts International. These properties comprise 12% of its portfolio.
- Hospitality: It owns roughly 10,000 hotel rooms, which make up 4% of the portfolio.
- Self storage: BREIT owns 11 million square feet of self-storage space, comprising another 4% of the portfolio.
- Retail: The REIT has 2 million square feet of retail space, making up 2% of the portfolio.
- Office: BREIT has 1 million square feet of office space, about 1% of the portfolio.
While BREIT has a diversified portfolio, its thematic approach has shifted its focus towards multifamily, industrial, and net lease properties in recent years. Further, it primarily invests in real estate equity (89% of its portfolio) instead of debt (11%). Meanwhile, its geographic concentration skews West (39%) and South (35%) over East (15%) and Midwest (11%).
Summary: Is BREIT a good investment?
BREIT has been a solid investment since its inception in 2017. However, performance varies depending on the share class purchased (more on that in a minute). The top-performing share class (Class D with no sales load) has delivered an 11.28% total annualized return since inception, while the lowest (Class S with a full sales load) achieved a 9.47% return through June of 2021. One factor driving BREIT's overall returns is its monthly distribution, which yields between 4.4% and 5.2% depending on the share class.
While those aren't earth-shattering returns, that's not BREIT's game. The REIT aims to generate consistent monthly income for its investors well above what they could earn in U.S. treasuries by owning a diversified portfolio of high-quality commercial real estate.
BREIT pros and cons
- BREIT allows anyone to invest with one of the best real estate teams in the business.
- It provides diversified exposure across several real estate types and geographies.
- High conviction, thematic investment should yield higher total returns compared to a simple income-focused aim.
- BREIT has a conservative balance sheet with a low 35% leverage ratio.
- It offers steady monthly income at yields well above U.S. treasuries.
- Lower fees compared to other traditional non-traded REITs and private-equity fund investments.
- BREIT can reduce an investor's exposure to the daily gyrations of the stock market.
- Shares are only available for purchase through a financial advisor.
- While BREIT offers a monthly repurchase program, it's a relatively illiquid investment.
- Higher fees compared to other non-traded REITs available through many crowdfunding platforms.
Is BREIT legit? How strong is it?
Blackstone is one of the biggest players in real estate, giving BREIT instant legitimacy. Meanwhile, it's financially strong, given its modest 35% leverage ratio. Add all that to its diversified portfolio of high-quality commercial real estate, and it's one of the strongest options in the private real estate market.
BREIT benefits from the expertise of Blackstone's global real estate team. The company has 29 years of experience in real estate and nearly 600 real estate professionals.
How BREIT works: How are investments sourced?
BREIT benefits from Blackstone's global real estate business. That opens the door to opportunities not available to other private REITs.
A prime example of how this relationship benefits it in sourcing new investment came in 2021. In June, Blackstone announced plans to take data center REIT QTS Realty Trust private in an all-cash deal valued at $10 billion. BREIT partnered with Blackstone Infrastructure Partners and other long-term, perpetual capital vehicles managed by Blackstone to privatize QTS Realty. That allowed it to participate in a large-scale transaction in one of Blackstone's highest conviction themes in the proliferation of data.
That transaction was one of several BREIT unveiled in 2021. The REIT also used its scale to privatize Canadian industrial REIT WPT Industrial Real Estate Trust in a $3.1 billion deal and acquire single-family rental (SFR) home platform Home Partners of America in a $6 billion transaction.
Meanwhile, BREIT has leveraged its relationship with Blackstone to make several other acquisitions over the years:
- It made an off-market acquisition of a high-quality portfolio of apartment communities in 2020 for $1.5 billion.
- BREIT purchased a hand-picked portfolio of 20 high-quality student housing properties in 2018 for $1.1 billion.
- It invested $5.3 billion to buy a 316-property, 64 million square foot industrial portfolio in 2019. That deal was part of a larger $18.7 billion acquisition Blackstone made in the sector.
Ways to invest in BREIT
While Blackstone created BREIT for retail investors, they can't easily purchase shares online, like through a crowdfunding platform. Instead, they'll need a relationship with a full-service investment advisor or a wealth management account with a large broker to purchase shares.
From there, they'll need to determine which share class to buy. BREIT has four share classes, with varying selling commissions, dealer manager fees, and stockholder servicing fees. Those fees are just to get started; investors also pay advisor fees to Blackstone, but we'll get to those later. The available share classes are as follows:
- Class I: These shares are available through fee-based (wrapped) programs with registered investment advisors and other institutional and fiduciary accounts. While there are no additional purchase fees for Class I shares, this class typically requires a $1 million investment minimum.
- Class D: These shares are also available through fee-based programs with investment advisors and other institutional and fiduciary accounts. This class carries a selling commission of up to 1.5% and a 0.5% annual stockholder servicing fee paid monthly. However, it doesn't incur any dealer manager fee.
- Class S: These shares are available through transactional and brokerage accounts. Investors pay selling commissions of up to 3.5% and 0.85% in stockholder servicing fees, though they don't incur broker fees.
- Class T: These shares are also available through transactional and brokerage accounts. They carry a selling commission of up to 3%, a 0.5% dealer manager fee, and stockholder service fees of 0.65% for the financial advisor and 0.2% for the dealer.
On one hand, these fees are quite high compared to many public non-traded REITs available on crowdfunding platforms. That's because those entities cut out the intermediary of financial advisors and brokers. However, BREIT's fees are much lower than many other traditional non-traded REITs. Many historically charged up to 15% selling commissions, meaning for every $1 invested, only $0.85 goes into a real estate investment.
Who can invest in BREIT?
BREIT is open to investors with a net worth of at least $250,000 or a gross annual income of at least $70,000 and a net worth of at least $70,000. While that does limit some investors, these suitability standards are much lower than the criteria for being an accredited investor, which requires a $1 million net worth (excluding your primary residence) or annual income above $200,000 ($300,000 if married) for the past two years.
What is the minimum BREIT investment?
Aside from the Class I shares, BREIT's minimum investment is $2,500. That's at the lower end for most public non-traded REITs.
What are BREIT's fees?
In addition to the fees charged by investment advisors, Blackstone levies fees for managing BREIT. It has a 1.25% per year fee based on the NAV, which the REIT pays monthly. In addition, it charges a performance participation allocation of 12.5% of the total return, subject to a 5% annual hurdle amount and a high-water mark. While these fees are higher than those charged by many non-traded REITs found on crowdfunding platforms, they're much less than the "2 and 20" fees (i.e., 2% annual management and 20% of the returns) that institutional investors typically pay for a privately managed fund.
BREIT returns: What should you expect?
As an income-focused vehicle, investors should expect dividend income to drive a significant portion of BREIT's returns. Since its inception, BREIT has typically paid a dividend yield of between 4.5% and 5%. In addition, it has delivered modest capital appreciation, pushing the total annualized return to between 9% and 11% after factoring in all the fees. Given its focus on owning income-generating assets in high-conviction themes like multifamily, industrial, and net lease, BREIT has the potential to generate similar returns in the future.
When (and how) can you sell your BREIT investment?
BREIT offers a share repurchase option for investors who need liquidity. It makes monthly repurchases based on the transaction price, typically equal to the previous month's NAV. However, shares not held for at least one year incur a 5% penalty as BREIT will repurchase them at 95% of the transaction price.
Further, BREIT limits repurchases to 2% of the aggregate NAV per month and 5% per calendar quarter. It's also under no obligation to make repurchases and can modify or suspend the plan. Thus, investors should consider BREIT an illiquid investment since they can't readily convert their shares to cash if they need the money. However, given that private real estate investments are long-term by nature, the ability to gain liquidity is a nice feature, especially since many private funds require multi-year holding periods.
Going mobile: Is there a BREIT app?
BREIT does not have a mobile application. However, it does have a mobile-optimized website.
BREIT risks: Is BREIT safe to invest with?
BREIT is one of the best non-traded REITs out there, crowdfunded or otherwise. It has the backing of one of the world's top real estate firms. The REIT also features a diversified portfolio of high-quality income-generating real estate assets benefiting from strong economic tailwinds. Combine all that with a low leverage ratio, and BREIT is one of the safest non-traded REITs.
However, investors will pay a premium for that quality in the form of higher fees to purchase shares of BREIT -- which they must do via a financial advisor -- and for annual management. Still, even with those fees, it has a solid track record of generating attractive total returns, including consistent monthly income. That makes it a potentially attractive option for investors seeking a high-quality way to earn passive income from the private real estate market.