The securities lawyers of Gana Weinstein LLP represent investors that were sold Blackstone REIT otherwise known as BREIT - a non-traded net asset value real estate investment trust (non-traded REIT). Our representations focus on the failure of brokerage firms to conduct adequate due diligence on Blackstone REIT. Investment advisors are obligated to conduct due diligence on securities recommended by the firm. The due diligence rule is heightened for non-traded REITs because the offering is non-public and investors have access to little publicly available information.
Blackstone REIT started in 2017 and was issued by one of the world's largest private-equity firms. Rather than cater to wealthy investors, Blackstone decided to create a REIT that would be sold to ordinary retail investors. At its peak in 2021, the fund was attracting as much as $3 billion a month in new investments and by 2024 BREIT claims to have assets of $114 billion. The fund generates about 8% of Blackstone's entire fee-earning assets and in total has generated over $5 billion in management fees over the years. Not only does BREIT get large fees but also pays hefty commissions to financial advisors who recommend it to their clients. Blackstone has paid Wall Street brokers more than $700 million in brokerage fees that can add up to a cap of 8.75% of the investment amount.
However, important questions have been raised as to the REITs valuation policies and actual value. In addition, in 2023 BREIT failed to generate enough cash to cover its annual dividend raising additional concerns as to the value of the REIT. An annual report showed that BREIT paid out more cash to investors than it made in 2023, $2.8B in distributions compared to $2.7B of cash flows. In addition, other metrics show that if you subtract Blackstone's fees, BREIT has covered less than 50% of its dividend distribution since its inception. One way BREIT apparently gets away with this is because nearly half of all shareholders have elected to receive their dividends in shares of BREIT. In other words, BREITs fortunes may depend on the continued belief of investors to accept shares of BREIT instead of cash.
In addition, several analysts have gone on record questioning the validity of an investment in BREIT and calling it a house of cards. These analysts believe that the returns the fund claims depend almost entirely on BREIT's own estimates which are claimed to be wildly inflated. Further, when BREIT faced large redemption requests from investors it fulfilled those requests by raising cash from new investors. In addition, MacKenzie Capital extended a mini-tender offer to REIT shareholders to buy shares priced 38% below NAV indicating what that firm believed BREIT should trade at.
The problem is that it's impossible to know how valuable BREIT is because the market doesn't determine its share price - Blackstone does. In other words, investors have to trust a company that makes more fees the higher the value is to determine what the price of the assets should be. One firm, Chilton Capital Management, has gone on record in 2023 stating that BREIT was overstating the value of its NAV by more than 55%. Craig McCann, principal at SLCG Economics Consulting, similarly calculated that while BREIT increased in value while the cumulative returns of other funds in the sectors in which BREIT is concentrated plunged by over 30% in 2022.
When it comes to non-traded REITs like BREIT, investors often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
The investment lawyers at Gana Weinstein LLP represent investors who have suffered investment losses due to allegations of wrongdoing. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.