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Written by: Johnathan Rickman | BlueVaultPartners
While the nontraded REIT (NTR) industry continues to contend with fundraising challenges and a dearth of new offerings, Q3 2024 performance data for public offerings show its top contender — Blackstone — taking control of redemptions and continuing to outperform, potentially signaling a much-needed turnaround for an industry hard-hit by high interest rates and economic uncertainty.
Blackstone Real Estate Income Trust has continually dominated the sector since it was introduced in 2016. The alternative investment giant’s NTR led the sector with $743.1 million in capital raise in the third quarter of 2024 for a 53.9% market share, having raised an estimated total of $79.9 billion since inception, according to Blue Vault Partners, a leading provider of data and analysis on public NTRs and other forms of alternative investments.
The fund’s managers also appear to be leading the way in managing redemption requests, which began to skyrocket in 2022, causing panic in the industry. This resulted in “redemption gating,” in which funds moved to temporarily limit investors’ redemption rights and partially satisfy requests.
From the fourth quarter of 2022 through the second quarter of 2024, Blackstone received redemption requests that exceeded its stated 2% monthly and 5% quarterly redemption limits. As a result, the fund limited the number of shares it repurchased to 5% of its aggregate NAV from Q4 2022 through Q4 2023.
The fund’s board of directors would go on to approve repurchase requests that exceeded its stated limits in both the first and second quarters of 2024. Redemption requests received in Q3 2024 totaled approximately 3.3% of the fund’s aggregate NAV — the first quarter since Q3 2022 that requests came in under the stated limits. The fund satisfied all requests made during the period.
“Blackstone seems to have turned a corner, and that may ease a lot of angst for other funds,” said Luke Schmidt, Senior Financial Analyst at Blue Vault. “How Blackstone typically performs is how the industry at large performs due to the firm’s sheer size. It will be interesting to see what happens in Q4 and Q1 2025, in terms of both redemptions and capital raise, and whether redemption gating will lift across the board.”
Nareit Delivers Good News
Nareit, the U.S.-based trade association for REITs and publicly traded real estate companies, said in a recent report that it is optimistic about the future of the asset class, trumpeting 2024 share prices and the overall-positive operating performance of both public and private NTRs.
“Through Nov. 30, 2024, total returns for the FTSE Nareit All Equity REIT Index were 14%, well above the 25-year average of nearly 10%, the industry group said in its 2025 REIT outlook last month. Nareit’s outlook is predicated on an easing rate environment
Noting REITs’ “ready access” to capital via equity and debt, Nareit says that if transactions increase, REITs will be “better positioned than some of their competitors to make acquisitions” and regain strength as an asset class. REITs raise money and then use it to buy and manage properties. However, acquisitions have been down over the last several quarters, forcing funds to use much of the money they raise to repurchase shares. According to Blue Vault, only eight public NTRs acquired properties in Q3 2024.
Further, since 2019, there have only been 10 new public NTR offerings and there were none in 2024.
Wealth Advisors Stay the Course on NTRs
Keenly aware of the higher-rate environment’s impacts on the asset class, many wealth advisors say they plan to continue allocating to NTRs, noting their unique ability to optimize 60/40 portfolios and potentially generate income for retail investor clients.
“Given the current interest rate environment and the anticipated decrease in rates, timing may be good to reexamine opportunities in the non-traded REIT space,” said Keri Pugh, Founder and Financial Advisor at Fusion Financial Group, a women-owned wealth management firm based in Colorado.
“If interest rates go down, this may spur a flurry of asset acquisition, which makes a compelling case to leverage offerings that can capitalize on this,” she added. “Of course, with some of the negative tone surrounding the space, we also believe that strengthening client trust is crucial here. Fostering dynamic conversations grounded in transparency and education could help ease investor worry about adding this asset to or increasing its allocation within their overall portfolio.”
Pugh plans to discuss NTRs and other alternative investment solutions for wealth advisors at Alts Summit 2025 in Frisco, TX, in mid-March. The annual event, hosted by Blue Vault, brings together fund managers, advisors, and other “alts” industry professionals to learn and network around alts. The event will also explore how data and artificial intelligence help advisors conduct due diligence.
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