The numbers behind giant funds
A mystery has been whispering on Wall Street for months. The question is, how accurate is the valuation of Blackstone's flagship real estate fund?
The speculation comes as the $59 billion Blackstone Real Estate Income Trust (commonly known as BREIT) fund has a wealth of assets that far exceeds virtually all other real estate funds. This is because they succeeded in maintaining their “evaluation” value. Faced with high interest rates and a depressed real estate market, the value of many of its rivals has fallen, some quite dramatically.
BREIT has outperformed its competitors, boasting an annualized return of 10.5% since its debut in 2017.
The debate over the fund's impressive performance has taken on more significance.and the voice of criticism grew louder. how According to a report by DealBook's Andrew Ross Sorkin and Michael de la Merced, Blackstone is determining the valuation of its assets. Many large companies rely on third-party appraisers to determine the value of a fund's assets so that investors can trust that the valuations are accurate and not unduly influenced by the company. (These valuations help determine the company's management fees. The higher the valuation, the higher the fee.)
Blackstone seems to do things differently. Although the company uses third-party appraisers and external auditors, it has the final say on the valuation of its assets.
Blackstone is open about its approach. From the recent prospectus:
“These assumptions will be determined by the advisor and reviewed by our independent valuation advisor.”
While Blackstone has disclosed how it determines final valuations, some on Wall Street are questioning how much discretion companies should have in valuing their assets.
Blackstone says its assets are being critically valued. “Our process requires the use of monthly real estate valuations guaranteed by a third party. We have never disabled these in BREIT’s history,” the company told DealBook in a statement. Ta.
It added: “We support a rigorous valuation process, which is substantially identical to the one we use for our open-end institutional clients, and will continue to operate at a premium to NAV starting in 2022. Validated by $20 billion in assets sold,'' he added.
Blackstone claims its valuation approach is more conservative than its competitors. Additionally, as one of the nation's largest real estate owners, Blackstone has better data and is able to value properties more quickly, making the valuation process more competitive than third-party appraisers. also claims to be superior. (Third-party appraisers often use delayed data.)
Blackstone also said its real estate asset portfolio is of higher quality than its competitors and includes high-growth sectors such as data centers and student housing.
To underline this point, Blackstone pointed out that it had sold assets including two Las Vegas casinos, a self-storage warehouse, and recently a stake in student housing at higher values, all at a profit.
Matthew Warner, managing director of REIT strategy at asset management firm Chilton Capital Management, said the fund hasn't meaningfully sold the majority of its portfolio of apartment and industrial properties. (Blackstone said BREIT assets in these sectors are performing well.)
Wall Street is divided on Blackstone's approach. “We think there's something wrong with it,” said Craig McCann, president of financial consulting firm SLCG Economic Consulting, who has written a number of blog posts criticizing the fund.
Others are more optimistic. Kevin Gannon, CEO of Robert A. Stanger, an investment bank that tracks REITs, told Dealbook that while his firm regularly observes that BREIT valuations outperform their peers, He said the calculations appear to be consistent with broader industry trends.
“We can't find fault with NAV,” Gannon said. “Am I worrying too much? No.”
However, BREIT could be tested next year. The fund has already weathered a major blow. Starting in late 2022, concerned investors began demanding their money back. Thanks to the BREIT structure, Blackstone was able to pay back its cash in stages, thereby avoiding a spike in outflows that would force the fund to sell assets at cut-rate prices.
Company executives acknowledge investors are concerned about the commercial real estate sector. In fact, Gannon said there have been redemptions at other REITs as well.
Blackstone said BREIT is a big part of its future. Real estate funds have increased the firm's assets (total assets now exceed $1 trillion), contributing $839.9 million in net management and advisory fees last year alone. The fund's success has contributed to the rise in Blackstone's stock price. Blackstone's stock has tripled in the past five years, closing Monday at $121.22.
Analysts and investors are watching Blackstone with great interest as it rolls out a new fund with a similar design that invests in private equity assets. If successful, it could pave the way for more funds to follow the BREIT formula.
what's happening here
Israeli forces send tanks into Rafah. Israel also took control of the Gaza Strip, which crosses the border with Egypt, but it was not the long-awaited full-scale invasion that the government had threatened. The military operation came after Hamas agreed to a ceasefire plan proposed by Egypt and Qatar, which Israel said it did not support.
The FAA has launched a new investigation into inspections of the Boeing 787 Dreamliner. The investigation began after the aircraft manufacturer said it may have failed to perform required inspections on the plane's wings. This is the latest bad news for Boeing, whose 737 Max 8 planes are already under scrutiny. Separately, Boeing postponed the first launch of its Starliner spacecraft, which was scheduled to ferry two astronauts to and from the International Space Station.
Conservative justices say they intend to blacklist Columbia University students from clerkships. A group of 13 judges called the university an “incubator of bigotry,” citing the pro-Palestinian protests that have rocked the school for weeks. Columbia University canceled a major graduation ceremony citing safety concerns, while police clashed with protesters at MIT and several schools in California.
Disney+ became profitable ahead of schedule. Disney's streaming service reported a profit of $47 million in the first quarter, but company executives expected the platform to stop losing money in the fall. This helped the entertainment giant beat analysts' overall earnings per share estimates by 10%.
Musk and media deals at Milken
Celebrities, politicians and financiers gathered for the first day of the Milken Institute World Congress in Los Angeles.
Hot topic: Conversation between Elon Musk and Michael Milken. DealBook's Lauren Hirsch reported from the event that the big topics are how private equity can return capital to investors as deals become difficult to close, and the sale of Paramount. That's what it means.
Everyone wanted to hear from Musk. Days after an unexpected and impromptu visit to China, the Tesla CEO spoke on a variety of topics, including artificial intelligence, space, regulation, and what's keeping him up at night (which he said were “civilizational risks” such as declining birth rates). We chatted about it.
Dozens of attendees lined up to watch the panel, forcing others to sit in an overflow room that was also full.
Everyone in the private equity industry is talking about “DPI.” Short for “distribution on paid-in capital,” which tracks a fund's return to investors, the debate has focused on how industry executives are trying to get their money back to investors after raising record amounts of capital. It reflects the presence of people. Options include selling some of your shares or taking out a loan against the fund's net asset value.
But not everyone is keen on the idea. Ann Marie Fink, who oversees private equity investments for the Wisconsin Investment Commission, said during a panel discussion that there was no system in place to assess liquidity if parts of the business were sold. “My concern is that if you sell 70 percent of my business, we don't have a mechanism that is fully developed yet where you become a 30 percent owner,'' she said. Ta. “How do I get liquidity with that $30?”
There's a lot of talk about what's going to happen to Paramount. The media company, whose studios are just a 20-minute drive from the conference venue, is considering an acquisition by David Ellison's Skydance, Sony and private equity giant Apollo Global Management.
One media dealmaker that appears to be staying out of the fight (so far): Warner Bros. Discovery CEO David Zaslav indicated during a panel discussion that he has no intention of making a bid. Zaslav is close to Paramount's controlling shareholder, Shari Redstone, and expressed interest in the merger in December. But on Monday, he said only that “I hope they're successful” no matter how the game ends.
money and met gala
Anna Wintour's MET Gala once again brought together the biggest names in business, fashion, film, sports, entertainment and technology as companies and celebrities flexed their brands' muscles.
The event is unofficially the party of the year, held to raise funds for the museum's fashion department. Monday's celebration was partially sponsored by TikTok and gave the company's embattled CEO, Shou Chu, a starring role as party leader. The company is out of the bad headlines after President Biden signed a law threatening to ban short videos. App.
The amount TikTok paid for the role hasn't been disclosed, but DealBook crunched the numbers on the celebration and its history to understand the amount behind it.
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$350,000: The start-up cost for a company to acquire a table. However, payment alone may not be enough to guarantee a seat. Winter, global editorial director for publisher Condé Nast, approves all guests.
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$75,000: This year's individual ticket price will rise from $50,000 in 2023.
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$3.3 million: He promised a total pay increase for Condé Nast union members who had threatened to disrupt the party before a deal was reached on Monday.
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$995 million: According to fashion data company LaunchMetrics, the “media impact value” the event brought to Vogue in 2023.
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$22 million: The amount raised at last year's Met Gala. Higher ticket prices this year mean higher attendance is expected.
speed reading
Information of sale
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Wayve, a maker of artificial intelligence software for self-driving cars, has raised $1 billion in new funding led by SoftBank, Microsoft, and Nvidia. (New York Times)
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The board of Spanish bank Sabadell has rejected a $13 billion takeover offer by larger rival BBVA. (Bloomberg)
policy
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Online trading app Robinhood has announced that the SEC is preparing to file charges against its cryptocurrency division for alleged violations of securities laws. (WSJ)
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“Republicans are doing everything they can to reverse EV adoption” (The Verge)
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