Blackstone’s BREIT and other real estate funds curb investor redemptions

“Frankly, investors will learn which (open-end real estate fund) managers are good at managing liquidity in a distressed time,” said Faris Mansour, head of business development in the Americas and EMEA for PGIM Real Estate. PGIM Real Estate had $136 billion in assets under management as of June 30.

That means keeping available credit on hand, managing portfolios so to always have some cash available and managing your assets to keep ahead of loan maturities and end of tenant leases, Mr. Mansour said.

Managing liquidity is critical because “you don’t want to sell your best assets,” he said. However, typically a portfolio’s highest quality assets have the most liquidity, he said.

At the same time, in this kind of market environment, inflows are not as strong and managers cannot rely on new investor capital flowing into their funds as a source of liquidity, Mr. Mansour said.

PGIM Real Estate executives try hard not to gate, which means cutting down the release of investor money to a dribble, Mr. Mansour said.

“When they ask for it (redemptions) we have an obligation, in a prudent way, to make sure investors can get liquidity,” Mr. Mansour said. “It’s not always as fast as some (investors) would like.”

While a small number of investors are seeking redemptions due to a meaningful shift in strategy, such as moving a larger percentage of their real estate portfolios into non-core from core, most investors are seeking liquidity to bring their real estate portfolios within allocation targets, he said.

Within its PGIM’s open-end real estate strategies, the vast majority of the redemption requests have been from core and core-plus open-end funds, Mr. Mansour said.

“We do have higher risk, higher returning open-end strategies and we have not seen redemption requests of any consequence” from those funds, he said.

“In this market, putting more risk on the table can actually yield higher returns now,” Mr. Mansour said.

And so in a down cycle, the first dollars invested are for opportunistic, more risky strategies, he said.