Key Takeaways
- • Blackstone REIT posted a 0.5% loss in 2023, its worst annual performance since launching in 2017, marking a sharp reversal from its 10.6% average annual returns over the prior six-year period.
- • Brookfield REIT declined 6.7% in 2023, representing its first annual loss since inception in 2019, after delivering double-digit gains (10–23%) in each of the three prior years.
- • Rising interest rates through early 2023 drove both underperformances by increasing borrowing costs, reducing property valuations, and dampening investor demand for acquisitions and refinancings in the income-producing real estate sector.
- • Blackstone REIT's redemption pressure is easing significantly, with December requests falling 80% from January 2023 peaks and 41% month-over-month, signaling reduced investor flight despite valuation challenges.
- • Blackstone REIT cited hedging losses as a December drag, noting that sharp interest rate declines reduced the value of its rate hedges, though the firm emphasized underlying real estate properties performed positively for the full year.
Summary
Two of the world's largest real estate investors—Blackstone Group (New York-based) and Toronto-based Brookfield Asset Management—saw their flagship income-focused REITs deliver historically poor returns in 2023 as the commercial real estate sector buckled under sustained interest rate pressure.
Blackstone Real Estate Income Trust (BREIT), the larger of the two vehicles targeting wealthy investors, recorded a 0.5% loss for the year following a 1.2% December decline. This represents the fund's worst annual performance since its 2017 inception, contrasting sharply with its historical 10.6% average annual return. Brookfield Real Estate Income Trust experienced an even steeper decline of 6.7%, marking its first annual loss since launching in 2019. The Toronto-based fund had delivered consistent double-digit gains between 10% and 23% annually from 2020 through 2022, posting more monthly losses than gains throughout 2023.
The deterioration stems directly from the Federal Reserve's aggressive interest rate hiking cycle in early 2023. Higher borrowing costs compressed potential returns across income-producing properties—the core focus of both REITs—while simultaneously discouraging property acquisitions and refinancings as capital became costlier. Real estate investors deferred transactions rather than accept significantly higher financing terms, creating a liquidity environment that pressured both fund valuations and underlying asset performance.
Blackstone REIT attributed its December loss partly to hedging dynamics rather than underlying property performance. The REIT noted that a sharp decline in interest rates late in the year reduced the value of its interest rate hedges, creating accounting losses despite real estate properties posting positive returns in December and throughout 2023. Management stated that "lower interest rates, if sustained, should be a long-term positive for real estate values," signaling confidence in recovery conditions if the interest rate environment stabilizes.
Redemption pressure on Blackstone REIT, which has faced significant shareholder withdrawal requests and implemented restrictions, has moderated substantially. December redemption requests totaled $1.1 billion—41% lower than November and 80% below the January 2023 peak—suggesting investor panic selling has waned as markets stabilized heading into 2024.
Blackstone Real Estate Income Trust (BREIT), the larger of the two vehicles targeting wealthy investors, recorded a 0.5% loss for the year following a 1.2% December decline. This represents the fund's worst annual performance since its 2017 inception, contrasting sharply with its historical 10.6% average annual return. Brookfield Real Estate Income Trust experienced an even steeper decline of 6.7%, marking its first annual loss since launching in 2019. The Toronto-based fund had delivered consistent double-digit gains between 10% and 23% annually from 2020 through 2022, posting more monthly losses than gains throughout 2023.
The deterioration stems directly from the Federal Reserve's aggressive interest rate hiking cycle in early 2023. Higher borrowing costs compressed potential returns across income-producing properties—the core focus of both REITs—while simultaneously discouraging property acquisitions and refinancings as capital became costlier. Real estate investors deferred transactions rather than accept significantly higher financing terms, creating a liquidity environment that pressured both fund valuations and underlying asset performance.
Blackstone REIT attributed its December loss partly to hedging dynamics rather than underlying property performance. The REIT noted that a sharp decline in interest rates late in the year reduced the value of its interest rate hedges, creating accounting losses despite real estate properties posting positive returns in December and throughout 2023. Management stated that "lower interest rates, if sustained, should be a long-term positive for real estate values," signaling confidence in recovery conditions if the interest rate environment stabilizes.
Redemption pressure on Blackstone REIT, which has faced significant shareholder withdrawal requests and implemented restrictions, has moderated substantially. December redemption requests totaled $1.1 billion—41% lower than November and 80% below the January 2023 peak—suggesting investor panic selling has waned as markets stabilized heading into 2024.
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