Blackstone chief defends real estate fund amid rush for withdrawals

Blackstone COO Jon Gray on BREIT Redemptions: We knew there would be periods of volatility

Investors nervous about Blackstone’s real estate investment trust should view it as a long-term vehicle well-positioned for the future, the company’s president said Thursday.

Black Stone has lobbied in the past week to cap payouts from the $69 billion private REIT, the Blackstone Real Estate Income Trust, or BREIT. This step followed redemption requests that exceeded previously set limits. The company’s stock is down 8% in the last five days amid controversy that included a Barclays downgrade of the alternative investment firm.

Jon Gray, Blackstone’s President and Chief Operating Officer, defended the positioning and structure, noting that investors were aware that BREIT had redemption restrictions.

“We set up the product with liquidity constraints,” Gray told CNBC’s David Faber during a live interview with Squawk on the Street. “We labeled it semi-liquid because we knew there would be a period of volatility at some point and we didn’t want to sell assets under pressure at the wrong time.”

In exchange for their patience, investors have benefited from a fund that Gray says has delivered a 13% cumulative return over six years in a challenging environment.

Publicly traded REITs have slammed this year amid a rising interest rate environment that has hit the real estate market particularly hard, raising questions about the true values ​​of holdings in private funds like Blackstone’s BREIT. The $35 billion Vanguard Real Estate ETFfor example, is down 26% year-to-date.

“The key theme here is that the performance has delivered and the structure that we created is working exactly as we intended six years ago and we are incredibly proud of the performance and the structure,” said Gray.

Investors should “look to Blackstone and say, ‘You’ve done an incredible job putting our capital in exactly the right region, in exactly the right sectors with the right balance sheet,'” he added. “I think they have faith in us.”

Still, the fund was hit by a doubling in November redemption requests, while subscriptions fell sharply to less than half a billion dollars from $880 million in September, according to Barclays.

Gray said the company can sell assets to make repayments, but can do so over an advantageous time horizon.

“We can sell if necessary,” he said. “It gives us a lot of confidence.”

Blackstone shares are up about 2% in early trading Thursday after the interview.