- Blackstone Inc. offered below-market financing on a student housing deal to make the $1B package more attractive.
- KKR & Co. secured the portfolio from Blackstone Real Estate Income Trust (BREIT).
- Asset managers are doing what they can to facilitate sales and manage redemptions amid falling property values.
According to Bloomberg, Blackstone Inc. (BX) is taking unprecedented steps to make its real estate deals more attractive. For the first time, the firm offered seller financing to facilitate the $1B sale of a student housing portfolio.
Sweetening The Deal
The rapid rise in interest rates has pressured real estate returns, prompting big asset managers to explore financial tactics to maintain liquidity and command high prices.
In the recent student housing sale between KKR & Co. (KKR), the buyer, and BREIT, the seller, Blackstone offered $800M in low-rate debt, coupled with below-market financing.
This helped KKR secure the properties in time for a crucial shareholder call. BREIT also earned a 7% premium on the sale.
Balancing Act
BREIT has been facing crushing investor redemption requests since 2022, allowing higher-than-normal withdrawals in May to maintain investor confidence. The trust sold $20B of real estate at a premium without in-place transferable debt, adeptly handling challenging conditions.
Meanwhile, Blackstone’s strategic use of seller financing, typically reserved for struggling assets, aims to facilitate stalled or otherwise undoable deals.
While this approach delays upfront payments and offers lower interest rates than market norms, it also supports higher bid prices and investor returns.
Why It Matters
Optics matter in the world of billion-dollar REITs, and BREIT has reassured investors they can trust Blackstone with their assets. Despite macroeconomic headwinds, Blackstone has even managed to maintain its share repurchase program without drawing on a line of credit.
BREIT’s approach contrasts with that of other firms, like Starwood Real Estate Income Trust (STWD), which recently tightened its redemption limits. While capping withdrawals helps control liquidity, it can also risk stoking investor panic.
