REIT Investor Loss Attorneys

Private REITs Can be Risky Even for Accredited Investors

Blackstone Real Estate Income Trust Limits Withdrawals As Some Investors Flee 

As more investors of Blackstone Real Estate Income Trust (BREIT) have been making withdrawal requests, the private real estate investment trust (private REIT) announced it would limit redemption requests.  Blackstone Inc.’s stock reportedly dropped up to 10%  in the wake of the news.

According to its website, Blackstone Real Estate Income Trust, which is a non-listed private REIT, invests mostly in “stabilize income-generating commercial real estate investments. It was marketed to rich investors, including accredited investors.

ThinkAdvisor reports that in 2022 BREIT got involved in over $20B of swaps contracts through November to combat growing rates. Also, issues of increased borrowing costs and an economy that is “cooling” have reportedly compelled the private REIT to warn that it could end up placing limits on or suspending repurchase requests.

Like all private REITs, Blackstone Real Estate Income Trust’s target market is accredited investors, which means it is generally not suitable for retail customers, conservative retirees, and unsophisticated investors.  Because it doesn’t trade on any exchanges, there is a limit to how much money investors can withdraw. ThinkAdvisor also reports that already, withdrawal requests have gone over the 2% net asset value (NAV) monthly limit and the 5% quarterly threshold. Meanwhile, large financial advisors at brokerage firms, including at UBS, have reportedly started to reduce exposure to BREIT.

But Blackstone Real Estate Income Trust’s financial issues don’t appear to be new. In an April 2020 filing with the SEC, it announced that its NAV/share had gone down 8.6% from $11.42/Class 1 share on February 29, 2020, to $10.44/share on March 31, 2020. Slow growth in the rental space and request for rent relief were among the reasons cited, as well as a slowdown in cash flow from hospitality assets and a drop in the CMBS markets. The COVID-19 pandemic appears to have taken a toll.

Shepherd Smith Edwards and Kantas (investorlawyers.com) REIT Investor Loss Attorneys is looking into claims of BREIT investment losses. Some investors may have been unsuitably sold this private REIT by a brokerage firm and could have grounds for a Financial Industry Regulatory Authority (FINRA) lawsuit for damages.

What Are Some of the Risks Involving Private REITs?

Typically, brokers should only market and sell private real estate investment trusts to accredited investors—individuals with at least $1M net worth (not including their main residence)  or that have an income greater than $200K during the last two years ($300K if they are married)—or institutional clients. Financial advisors should not be marketing private REITs to retail investors, conservative retirees, or unsophisticated, inexperienced investors. To do so would make this an unsuitable investment recommendation and could be grounds for a FINRA arbitration claim against the brokerage firm should serious REIT losses result.

However, it is also important to note that just because someone is an accredited investor and/or high-net-worth investor, or even an institutional investor, does not mean that they can never fall victim to unsuitable investment recommendations involving private REITs or any other kind of investment.

Other Risks Involving Private REITs

• Unlike listed real estate investment trusts, non-listed REITs do not trade on any exchange, which makes them illiquid. This means it can be very hard for investors to cash out.
• They are exempt from Securities and Exchange Commission (SEC) regulation and not subject to the majority of its regulatory requirements.
• A lack of transparency means managers can have conflicts of interest or make decisions that don’t have to be disclosed to investors.
• Generally private REITs involve high minimum investments.
• Broker dealers and their financial advisors usually will charge high commissions and fees for private REIT transactions.

It is also important to note that just because a large, reputable broker-dealer sponsored a private REIT does not guarantee that this is a suitable investment recommendation for you. Some Wall Street has been known to overconcentrate clients in these types of investments or fail to conduct the necessary due diligence that might have otherwise identified certain red flags.

To schedule your free, no-obligation case assessment with one of our seasoned REIT investor loss attorneys, call the REIT investor loss attorneys at Shepherd Smith Edwards and Kantas at (800) 259-9010 today.