In a significant move for private equity, Bluerock, a New York-based alternative asset manager, has transitioned its Bluerock Total Income+ Real Estate Fund into a listed closed-end fund under the new name, the Bluerock Private Real Estate Fund (BPRE). This change comes amid mounting challenges faced by the fund, which has seen substantial losses due to rising interest rates, making the decision to list both timely and critical.
Launched in 2012, the Bluerock Total Income+ Real Estate Fund initially thrived by investing in private real estate through a structure known as an “interval fund.” This allowed investors to redeem limited amounts of their investments quarterly. However, the fund, which managed $3.6 billion, recently suffered an 11.5% decline in 2023 and further losses of 6.6% in 2024, resulting in an influx of withdrawal requests that the fund struggled to fulfill.
In response to this liquidity crisis, Bluerock has indicated that listing the fund on the stock market will grant it “investment freedom.” The company highlighted how converting to a public vehicle would enable liquidity through secondary market trades rather than direct redemptions, potentially preventing the fund from becoming a “forced seller” of its assets. This strategic pivot aims to stabilize the fund’s performance and maximize shareholder value without being tightly constrained by immediate cash demands.
As BPRE made its market debut on the New York Stock Exchange, it opened at $14 per share. However, it was trading at $15.12 shortly thereafter, reflecting a staggering 38% markdown from its net asset value (NAV) of $24.36 at the time of listing. This dramatic discount raises concerns, as it nearly erases the cumulative returns that the fund had generated since its inception.
Bluerock’s CEO, Ramin Kamfar, characterized this initial market reaction as event-driven and contingent on the transition from existing sellers to new buyers. He suggested that such discounts are common among newly listed investment funds and tend to normalize over time as buying interest develops. The CEO expressed optimism that the share price would align more closely with its NAV over several quarters.
The assets held by BPRE include investments in approximately 35 underlying real estate funds managed by notable firms like Prologis, CBRE, Ares, Carlyle, and Brookfield. Its largest holding is a 15.8% investment in IQHQ, a private California-based real estate investment trust focused on life sciences properties. Overall, the fund’s diversified portfolio comprises over 5,000 properties, weighted significantly towards industrial and residential real estate.
While the conversion offers a potential solution to liquidity issues, the immediate market response signifies broader implications for private equity. The 38% markdown on its first trading day accentuates a hesitance among investors regarding the veracity of private market valuations in comparison to public perceptions. Experts note that while discounts can be normal for closed-end funds, the current environment reflects deeper challenges within private equity, raising questions about the viability and transparency of these investments when exposed to public scrutiny.
Bluerock has committed to supporting its share performance, even suggesting the possibility of reversing the conversion if necessary. As market sentiments settle, the long-term outlook for BPRE remains uncertain, with industry observers keenly watching how this transition affects both investor confidence and broader market dynamics for private equity vehicles.
