Illiquid gold?
The lesson, financial professionals said, is that investors need to understand liquidity, or in this case illiquidity.
“When money is coming in and growing, none of this is an issue. And people have been really happy with it so far, because the managers are not pricing it, they’re not writing stuff down,” Pinchuk said. “It’s great that we’ve democratized this and given investors access, but the odds are they don’t understand it.”
Jeffrey Nauta, a principal at Hendrickson Nauta Wealth Advisors in Belmont, Mich., invests in a real estate fund that's similar to BREIT. "Frankly, I'm surprised that advisors and the market are spooked by BREIT," he said. Other REIT funds have "gated redemptions over the years," he said. "Investors should approach these types of investments as long-term holds."
If there's a lesson for advisors and investors from BREIT's closing off redemptions, he added, it's that "these investments should be considered illiquid."
Edward Fernandez, president and CEO of 1031 Crowdfunding, a real estate investing platform based in Irvine, Calif., said that real estate investments are a core, long-term investment. “If you want short-term gains, invest in the stock market and options,” he said.
Real estate is a good investment in an inflationary environment, Fernandez explained, but it is cyclical. “We’re in a situation today where the good times are coming to an end, [and] everyone’s been spoiled,” he said.
Michelle Connell, president of Dallas-based Portia Capital Management, concurred. “I don't know that this news is a new revelation regarding the ownership of alternative assets,” she said. “I think it's just another example of why investors and advisors have to understand the potential risks of alternative investments.”
These sorts of assets “require much more due diligence than those traded in the public markets,” she added. “Alternative asset investors need to understand the potential illiquidity issues of what they are buying.”
But most importantly, investors need to understand that gating redemptions when a certain threshold is reached doesn’t necessarily mean BREIT is or was a bad investment. “For REITs that invest in illiquid assets, like real estate, this is a necessary precaution that seeks to balance investor expectations and needs with those of running a real-estate investment platform,” said Ken Stern, president of Los Angeles-based Lido Advisors.
Gating withdrawals has no direct bearing on the merits of the investment one way or the other, he said, adding that Blackstone is a “well-respected asset manager with a good team at the helm. ”Still, when considering investing in BREIT, or any other investment, clients should understand “the asset class, its place within your portfolio, and whether that investment achieves your objectives,” Stern said.
Alternative assets remain a legitimate allocation for investors, as many of them can help preserve value during challenging periods, Pinchuk said.
“BREIT was the training wheels for a lot of investors and RIAs to get their feet wet in alts. Many will graduate to other types of alternatives that are less liquid,” Boca added. “In a highly recessionary environment, real estate is not a bad place to be.”