Investors are withdrawing money from REITs in record quantities

[Manny Vasquez]

I just read an article on the Wall Street Journal https://www.wsj.com/articles/i... stating the fact that investors have responded to rising interest rates by pulling money out of real estate funds in record quantities. As a matter of fact, nontraded REIT's, such as Starwood Capital Group and Blackstone , have paid out $3.7 billion in withdrawals in Q3 2022 - which is an alarming increase of 12 times from that same period in 2021 (Y-O-Y). Both of those companies have limited the amount of investor withdrawals . These withdrawal limits are triggered in order to prevent the fund from having to make forced sales.

However, even with pre-set withdrawal limits from these REIT companies, investors can continue to withdraw their money in the future, which has several negative effects on REITs:

1) It prevents REITS from buying properties or continue existing projects (in order to hold-on to cash reserves and pay back investors)  

2) If investors continue to withdraw money, this may lead to a downward spiral of selling assets if it can't gain the trust of its investors (i.e. the forced sales of its properties).   

2a) As a matter of fact, Blackstone has put up for sale its 49.9% interest in MGM Grand Las Vegas and Mandalay Bay Resort & Casino

Given the above news and with Zillow, Redfin and Opendoor closing down there iBuying departments, Is this another bellweather for dire commercial and residential economic conditions to come? 

Postcript: Personally, I couldn't be more elated with the above news as this opens-the-door (no pun intended) for the little guy to buy (both residential and commercial).

[Greg Scott]

Good post. More data on the dire straits of some commercial residential real estate investors.

Is this a time for worry?  I would worry if I overpaid hoping the market would bail me out.  I know a bunch of properties that are nearing foreclosure.  There may soon be blood in the streets. Frankly, I'm excited about the opportunities.  

Meanwhile, our existing properties are well-capitalized and performing well in solid, steady markets.  It was frustrating to get outbid on so many deals the past few years, but we are grateful we stuck to our strict underwriting because we really have no concerns about the next 24 months.