The Big Questions Hanging Over a Blackstone Fund

Wall Street has been awash with whispers about how Blackstone’s blockbuster real estate fund values its assets.Credit…Jeenah Moon/Reuters

The numbers behind a big fund

On Wall Street, one mystery has been whispered about for months: How accurate is the valuation of Blackstone’s flagship real estate fund?

The speculation has arisen because the fund, the $59 billion Blackstone Real Estate Income Trust — more commonly known as BREIT — has managed to keep an “appraised” value of its assets that far exceeds virtually every other real estate fund. Many rivals have fallen in value, some quite dramatically, in the face of high interest rates and a flagging property market.

BREIT’s performance has floated above its competition, and it has boasted a 10.5 percent annual return since its 2017 debut.

The debate over the fund’s impressive performance has taken on greater significance, and the criticism has grown louder, because of how Blackstone determines the appraised value of its assets, DealBook’s Andrew Ross Sorkin and Michael de la Merced report. Many major firms rely on a third-party appraiser to determine the worth of a fund’s assets, in part so investors can trust that the appraised value is accurate and not unduly influenced by the firms. (Those appraisals help to determine a firm’s management fees: The higher the appraisal value, the higher the fees.)

Blackstone appears to do it differently. While it uses a third-party appraiser and an outside auditor, the firm has the final say on the appraised value of its own assets.

Blackstone is open about its approach. From a recent prospectus:

While Blackstone discloses how it determines the final valuation, some on Wall Street have questioned how much latitude firms should have in appraising their own assets.