The report says the SEC is reaching out to Blackstone and Starwood after the real estate giants limited investors’ withdrawals.

  • Investors are withdrawing their money from large real estate funds at a rapid pace.
  • Blackstone and Starwood recently limited investors’ ability to withdraw.
  • The SEC is now requesting details about these decisions, according to Bloomberg.

Blackstone and Starwood Capital Group are drawing the attention of the Securities and Exchange Commission for their recent moves to limit the ability of retail investors to take their money out of corporate REITs, according to Bloomberg.

Real estate funds have recently seen a surge in withdrawal requests amid a broad drop in investor sentiment and a potential economic downturn. This led to both private equity giants pausing redemptions after reaching their monthly and quarterly withdrawal limits.

Investors in and out of the funds have taken note, as has, apparently, the Securities and Exchange Commission. The regulatory agency reached out to both Blackstone and Starwood this month to assess the market impact and the specific circumstances of the pause, according to Bloomberg, which cited multiple anonymous sources.

The agency was looking into how the companies offered refunds to their clients, and whether any of the two companies’ subsidiaries sold their shares before the clients, according to one of the sources. The report said the investigations were not an indication that the company was under investigation or that it had committed any wrongdoing.

Blackstone and SEC representatives declined to comment to Insider. A Starwood spokesperson did not respond to requests for comment on Friday.

Retail investors are taking a hit on Blackstone shares

Blackstone launched the Blackstone Real Estate Income Trust, known in the industry as BREIT, in 2017 as a way to cater to wealthy individuals — other than the company’s typical large institutional client — who were looking for better returns in what was then a near zero-interest rate world.

With the assets that have flowed into the fund, it’s been a success. It raised $68 billion, and last year the company sought to replicate the fund for private credit investors with the Blackstone Private Credit Fund, known as BCRED.

But this year brought challenges as the real estate market faltered and more investors turned bearish. Bill Katz, a research analyst at Credit Suisse who tracks Blackstone, raised concerns about the funds’ growth in a report to clients and downgraded the stock to something equivalent to a “sell” rating. Blackstone shares are down 21% in the past month, compared to a 3% decline for the S&P 500.

In recent remarks to Insider, a Blackstone representative said BREIT’s revenue has been strong. The fund has returned 8.4% so far this year and a three-year annualized return of 14.9%, according to its website, which is a respectable performance for some analysts.

“In response to BREIT’s redemption limits, our experts agree that the fund is delivering on its mandate from a performance and liquidity perspective,” Morgan Stanley research analysts said in a report to clients on Friday.

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