Why do you think investors would benefit from an allocation to commercial real estate?
The $16 trillion U.S. commercial real estate market1 is the third largest asset class after the $41 trillion U.S. fixed income market and $30 trillion U.S. equities market.2 Commercial real estate is a diverse sector spanning multiple geographies and asset types including office, hotels, multifamily (apartments), retail (shopping centers), and industrial (warehouses). Commercial real estate may offer the characteristics of both bonds (yield) and equities (capital appreciation). The asset class can provide a current income stream similar to fixed income through rents from properties, while also potentially generating capital appreciation through increases in property values. In addition, total returns from commercial real estate have historically exhibited low correlation relative to fixed income or equity investments. As a result, an allocation to real estate could result in higher returns for an investor’s overall portfolio while potentially reducing volatility. Commercial real estate returns may also act as an inflation hedge, as values have historically risen with inflation and interest rates. Compared to equities and fixed income, commercial real estate offers less liquidity.Back to Top ↑
What do you think is particularly interesting about the income characteristics of commercial real estate?
Over the past twenty years, nearly 80% of the total return of commercial real estate has come from income,3 which is generated by rents paid by tenants at properties. However, unlike fixed coupons from bonds, the income from real estate has historically outpaced inflation. In addition, bonds have principal payments that do not grow at maturity, while real estate may appreciate over time from higher rents as well as from economic expansion, employment growth, or population growth. An investment in fixed income differs significantly from non-traded REITs and fixed income is generally considered to be a less risky investment than commercial real estate.Back to Top ↑
What are the key differences between listed and non-traded real estate investment trusts (REITs)?
Publicly listed and non-traded REITs both provide access to a pool of real estate assets for individual investors and are governed by similar tax rules regulating REITs (e.g., requiring at least 90% payouts of income to shareholders). Both structures may provide compelling total returns with an emphasis on yield. One key difference is that publicly listed REITs trade on a securities exchange and offer the attraction of daily liquidity to investors. Non-traded REITs do not trade on a securities exchange, and therefore while the property values of non-traded or commercial real estate may fluctuate, they are somewhat insulated from the daily volatility of the public markets.Back to Top ↑
What are the primary risks of investing in commercial real estate (non-traded REITs)?
Like any investment product, BREIT may underperform relative to its stated investment objective; market cycles and real estate conditions could hinder performance over the course of any individual investor’s time horizon; the lack of a public trading market for BREIT and limitations on its share repurchase plan will limit investment liquidity; BREIT will begin as a blind pool and grow its portfolio over time; there is no guarantee of distributions; REIT qualification risk; leverage risk. Please refer to Risk Factors in the prospectus for a more detailed explanation of associated risks.Back to Top ↑
How is BREIT different from other non-traded REITs?
BREIT is the first perpetual-life, monthly-NAV, non-traded REIT in the marketplace. It brings institutional management by one of the world’s largest commercial real estate investors to individual investors. It offers transparent and institutional fees that align interests — lower upfront fees and no acquisition, disposition, development or financing fees. The Advisor instead is compensated based on performance; 1.25% management fee on net assets and 12.5% performance participation allocation on total return subject to a 5% hurdle amount and a high water mark. BREIT also offers share classes with low or no sales charges. In order to provide regular liquidity for share repurchases under its share repurchase program, BREIT targets allocating up to 20% of NAV to real estate debt securities, cash and/or cash equivalents. BREIT will seek to invest across asset types, including multifamily, office, hotels, retail, and industrial, with the intention of diversifying the portfolio.Back to Top ↑
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Note: Market capitalizations as of December 31, 2017, unless otherwise noted.
There is no assurance that real estate investments will achieve capital appreciation or provide regular, stable distributions.
1. Green Street Advisors, December 31, 2017.
2. The World Bank, Securities Industry and Financial Markets Association (SIFMA), December 31, 2017.
3. NCREIF ODCE based on 10-year period ending December 31, 2017.