Public REITs have several advantages over private investments. It is ideal for passive income generators because they produce higher income yields. Listed companies, however, have some disadvantages. Stock market volatility is one of the biggest risks. A broad market sell-off often lowers REIT stock prices. Liquidity usually comes at a premium. Publicly traded REITs usually offer lower dividend yields.
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Private Real Estate Investments
Over the last two decades, private real estate investments have outperformed REITs. Individual investors are increasingly investing in private real estate. Before, private real estate was only a privilege of the wealthy. Due to this, most individuals could not access markets with historically higher returns.
Blackstone Real Estate Income Trust (BREIT)
The Blackstone Group created Blackstone Real Estate Income Trust to target individual investors. Having raised more than $50 billion, the non-traded REIT is Blackstone’s largest fund. Aside from private equity and real estate, they invest in life sciences, insurance, hedge funds, infrastructure, and real estate.
In the last 26 years, they’ve managed $104 billion of real estate assets. They own multifamily units, numerous hotel units, and millions of square feet of retail and industrial space.
Investing In BREIT
- Many institutional investors believe it should form the foundation of a real estate portfolio.
- Using conservative techniques and leverage, core/core plus funds outperform other strategies. It holds up better in bad times than in boom times. The fund’s distributions returned 5.79% in May 2018, and its total return was 10.9%.
- Despite just starting in January 2017, the fund has already been well diversified by Blackstone. The company already manages 491 assets across various asset classes and geographies, with total assets under management of $11.9 billion (AUM).
- It also offers the best lockup and withdrawal. Withdrawals are allowed in the first year, but a 5% penalty applies. It is not penalized after that. You can redeem it at any time. Acquisition and management fees are also waived.
- Despite being above the average core-plus funds at 50%, leverage is conservative by non-accredited investor standards at 60%.
- BREIT may not be suitable for all non-accredited investors since income requirements apply. Despite being lower than accredited investor standards, some will find them too high.
- Either $250,000 in net worth or a gross annual income of at least $70,000 and a net worth of at least $75,000 are required for investors.
- Additional suitability standards apply in certain states.
Drawbacks And Risks
Some believe BREIT’s popularity has become an issue or could be one in the future. Increasing a fund’s size limits its ability to make medium and small purchases. Large deals are its only option. This may make it more difficult for them to buy properties at a discount due to competition with public REITs. The performance may be adversely affected.
A major focus of BREIT is stabilized income-producing commercial real estate investments, including debt investments and a particular focus on current income, in the United States. To a lesser extent, they invest overseas. Risk is high in this investment. Investors are advised to do their due diligence and ensure they are prepared to take the risk.
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