CRE Prices Continue To Drop While Blackstone Tries To Keep Investors From Bailing
Commercial real estate (CRE) prices dropped again in January, according to the latest Green Street Commercial Property Price Index. The all-property index was down 0.6% in the first month of the year and is now down 14% from its peak in March 2022. Meanwhile, some investors continue to pull away from CRE.
One of the largest real estate investment vehicles, run by Blackstone Inc. (NYSE: BX), saw its $69 billion redemption limit reached in January as the firm tries to stop the flow of investors looking to get their money out. The Blackstone Real Estate Income Trust (BREIT) reported to investors last week that it had fulfilled repurchase requests for 2% of its net asset value. According to a letter issued by Blackstone, that total amounted to a quarter of what investors wanted to pull out. Repurchase requests were more than $55 billion, according to Bloomberg.
Green Street's Commercial Property Price Index® is a time series of unleveraged U.S. commercial property values that captures the prices at which commercial real estate transactions are being negotiated and contracted. Green Street Co-Head of Strategic Research Peter Rothemund said that with commercial property prices down nearly 15% from their peak, “the real-time picture of property pricing shows a market where we’ve either reached bottom or are very close to it.”
Blackstone President Jon Gray had already cautioned his board and investors that a large number of redemptions in January would involve unfulfilled requests from November and December. In a written statement, Blackstone said, “We expect it will take some time to work through this backlog and that flows will normalize over time as BREIT continues to deliver for investors.”
BREIT told investors Wednesday that it fulfilled repurchase requests for 2% of its net asset value. According to a letter, that accounted for about 25% of what investors wanted to pull out. January repurchase requests were north of $5 billion, according to Bloomberg calculations.
Though CRE prices continue to drop, Green Street remains bullish, except for office space that it says will continue to underperform. “Despite an expected slowdown in the U.S. economy this year, rent and occupancy growth should remain solid across most sectors,” said Andrew McCulloch, Green Street’s global head of data and analytics. “Office rents and occupancy fell further in 2022, and the sector's bottom is yet to be found. Green Street still expects work from home to reduce office demand by about 15% over time.”
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