A Blackstone Inc. real estate trust for wealthy investors notched a 0.5% loss in 2023, the lowest annual return since its 2017 debut.

Blackstone Real Estate Income Trust’s gains fell short of the threshold that would allow the asset manager to partake in profits. The firm can take a share of total returns as long as BREIT delivers at least 5% for the year.

This marks the first year the trust has fallen short of the mark to earn carried interest, which rewards dealmakers for generating returns and is a major incentive for the industry.

BREIT brought growth, dollars and bragging rights for the private equity firm as the trust expanded into a $70 billion behemoth at one point. It allowed the company to bet big on favorite property sectors and marked Blackstone’s dominance among financial advisers and individual investors.

The fund’s muted results in 2023 shows that BREIT hasn’t been immune to rising interest rates and a slowing property market that has pressured returns. The trust’s return lagged behind the 26% total return of the S&P 500. BREIT returned 8.4% in all of 2022 and more than 30% in 2021. It now sits on roughly $62 billion in net asset value. 

BREIT’s 1.2% loss in December—a result of hedges that declined in value when key borrowing rates fell late 2023—pulled down the year’s performance. Blackstone had enlisted interest-rate hedges to mitigate the pain from soaring borrowing costs. The firm said in a memo that even if there might be some immediate sting, sustained lower rates will lift real estate values across the fund’s portfolio.

For Blackstone staff, BREIT has been a broad test of how the firm handles stressful situations and manages investors.

Clients ratcheted up requests to pull cash in 2022, forcing BREIT to enforce its redemption limits. BREIT has returned $14.3 billion of investor cash since Nov. 30, 2022, according to a shareholder letter this month.

BREIT’s slowdown is one reason why analysts estimate that Blackstone’s annual distributable earnings will fall to about $5 billion for 2023, from $6.6 billion a year earlier.

On an October call with analysts, President Jon Gray—a key mastermind behind BREIT—said the trust worked as designed to give investors some liquidity while protecting performance.

New York-based Blackstone said in a statement that with $66 billion in money waiting to be invested, and given its culture, “we could not feel more confident about our ability to attract and retain amazing people.”

A key share class has delivered 11% annualized net returns, outpacing public peers by about two times since BREIT’s launch. 

There are some signs that the worst of the storm has passed. Blackstone said earlier this month that redemption requests have ebbed substantially, falling 80% in December from its peak in last January.

This article was provided by Bloomberg News.