Is It Illegal? Well, It Sure Is Unethical
"you can afford to make less, make less!"
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Today, we released a podcast episode with the wonderful Phil Bak on all things BREIT (links above). Here is his Substack which has covered the topic in great detail:
Here are the topics from the podcast along with timestamps across the episode. Hope everyone enjoys the interview!
(00:00) Introduction and Background
(02:32) Misconceptions about REITs
(04:29) Armada Investors: A Quantitative Approach
(07:46) HAUS: Pure Play Exposure to Residential Real Estate
(12:10) REAL: A Multi-Factor Approach to Real Estate Investing
(15:27) The BREIT Controversy
(30:53) The Issues with BREIT: Elevated NAV, Redemptions, and Fake Dividends
(37:15) Strategies to Address the BREIT Situation: Selling Properties and Raising New Money
(40:25) The Material Impact of BREIT on Blackstone
(45:10) The Logic of the BREIT Structure: Promising Liquidity in Illiquid Assets
Now, what are my thoughts on BREIT and Blackstone’s decisions?
I am reminded of this scene from the Big Short (2:30 in on this clip):
“If we don’t work with them, they will go to our competitors…and I never said that”
"You’re selling ratings for fees?”
“You can afford to make less, make less!”
“Nobody said that”
Blackstone unrealistically marking up the NAV on BREIT while gating fees is not illegal. Nor does it look like commercial real estate is a bubble similar to the Great Recession, which is not what Phil claims.
But is it unethical? 100%.
Blackstone is keeping these marks high to earn more fees, increasing earnings to executives and shareholders at the expense of the “everyday investor” it purports to serve at BREIT.
They can afford to make less. They should make less. It might make Blackstone’s stock go up, but the company — at least, in my opinion — is risking its entire reputation for some fees.
And what matters at the end of the day?
Brett
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