Blackstone Real Estate Income Trust, the prized fund of investment giant Blackstone, is often scrutinized because it’s far bigger than all other nonlisted property real estate investment trusts. Some critics have dogged the REIT for a couple of years over concerns about how it conducts appraisals, and whether those numbers accurately reflect current deflated property values.

But, while Blackstone REIT may loom large in total assets, a CoStar News analysis shows the values of its properties have dropped by roughly the same percentage as its rivals.

The issue is important to investors because valuations are used to calculate returns and share prices, and higher valuations mean increased fees. And since Blackstone REIT is the largest fund, with $130.8 billion in assets at the end of 2023 versus the next largest, Starwood REIT, at $23.1 billion, it carries influence with the most investment dollars at stake.

The criticism has drawn renewed scrutiny in recent weeks as interest rates that have remained higher for longer than some had expected have prompted a further reassessment of property values.

The analysis into the appraisal data from multiple peer nonlisted REITs indicate Blackstone REIT’s property valuations are in line with falling values across the sector as Blackstone REIT has adopted higher capitalization and cash flow discount rates.

Blackstone REIT is what’s known as a net asset value REIT, or NAV REIT, a type that isn’t traded publicly on a stock exchange. The net asset value of its properties is crucial to the way it operates. Such REITs monthly calculate and disclose their property NAVs. Those figures are used to help investors understand how the fund is doing, and how to value their shareholdings. NAV REITs, however, don’t break out individual property assessments.

Blackstone REIT’s NAV started falling one to seven months earlier than nine other NAV REITs based on a review of Securities and Exchange Commission filings for similar REITs that have reported property NAVs every month since 2021, before the Federal Reserve started hiking borrowing rates.

From a peak valuation in August 2022 through March 2024, Blackstone REIT’s NAV has fallen 8.1%. The average NAV decline for eight of the 10 REITs was 9.3%. Two NAV REITs reported value increases in their property portfolios since August 2022.

In compiling their property NAVs, each of the REITs disclose assumptions of future performance that make property values. When so-called discount cash flow and exit capitalization rates move higher, it pushes asset values lower. NAV REITs typically outsource the details of these calculations to third-party appraisal firms.

What the SEC data shows is that even at Blackstone REIT’s peak valuation in August 2022, it used higher percentage assumptions than the nine other REITs. Those assumptions have moved even higher over the past two years.

“Looking at some of the discount rates they are using and comparing to other funds, Blackstone REIT is actually using higher discount rates when valuing these properties, which would theoretically cause them to be undervaluing these properties compared to their peers,” Luke Schmidt, senior financial analyst with Blue Vault Partners, an alternative investment management consultant in Cumming, Georgia, told CoStar News in an email after reviewing the SEC data compiled.

Blue Vault did its own analysis of Blackstone REIT’s NAV calculations in February. It concluded changes in discount cash flow and exit capitalization rates used by valuation firms are highly correlated with changes in market interest rates. That correlation accounted for Blackstone REIT’s falling asset valuations.

Blackstone REIT contended the same in a response to CoStar News.

“We believe our valuation process is the most rigorous in the industry,” the REIT said. “We have widened Blackstone REIT’s assumed exit cap rates in our core sectors of rental housing and industrial by more than 18% and discount rates by more than 13% — in each case, reducing asset values — since December 2021. We believe Blackstone REIT’s valuation assumptions were adjusted more quickly and are more conservative than nonlisted REIT peers.”

Blue Vault’s Schmidt said it’s important to look at how funds calculate their property valuations to see how they differ from Blackstone REIT.

Critics have contended that Blackstone appears to do appraisals differently than the rest of the industry. While Blackstone REIT uses a third-party appraiser and an outside auditor, it has the final say on the appraised value of its own assets, they say. However, SEC data shows that approach seems to be the norm.

It’s important to note that any reading of NAV is not adjusted for property purchases or sales over a period of time. NAV figures may increase or decrease due to a range of factors that includes deals as well as changes to discount and cap rate assumptions. Nuveen Global Cities REIT told CoStar News it’s made property acquisitions that have resulted in a higher dollar value invested. But the increase in NAV is not reflective of property appreciation — Nuveen’s values declined from August 2022 through March 2024.

Other large nonlisted REITs use similar language in their prospectuses including the next two largest by net asset property values, according to the filings. Starwood REIT and Ares Industrial REIT both use language resembling Blackstone REIT’s explanations, and each of them claims that the REITs have the final say in valuations.

Sean Harris, CEO of Starwood REIT, addressed the issue of valuations in the REIT’s first-quarter earnings call with investors last week.

“Our process is very third-party-centric. Every quarter our assets are valued by an independent third-party valuation firm,” Harris said. “That third-party-centric focus, I think, is a key element to having comfort on the way that these assets are marked. We’ve been on, I think, the more conservative side with how we’ve moved out exit cap rates and discount rates, really since interest rates started moving higher, beginning in 2022. We’ve moved our exit cap rates about 19% higher across our multifamily and industrial properties and our discount rates about 17% higher across our multifamily and industrial properties.”

While Starwood REIT’s reported percentage growth in cap and discount rates is higher than Blackstone REIT’s, it started from lower base rates. Blackstone REIT still used the highest assumed exit cap rate among its peers as of March 2024 and the second-highest discount rate.

CoStar News emailed Starwood REIT for additional comment but didn’t immediately hear back.

Craig McCann, president of the financial consulting firm SLCG Economic Consulting, was among the first to criticize Blackstone REIT’s valuation process two years ago.

In December 2022, McCann took exception with several aspects of Blackstone REIT’s reporting. One element missing from the valuation assumptions is projections for net operating income growth, McCann told CoStar News in an email.

“An equally important but undisclosed rate is the assumed growth rate in net operating income,” McCann said. “Only when the wheels fell off did Blackstone REIT for the first time disclose high assumed growth rates but never quantified ‘high’ or the sensitivity of its valuations to this critical assumption.”

McCann was referring to the fall of 2022, when Blackstone REIT shareholder redemption requests ballooned in response to market conditions, driving down valuations. Redemption requests also surged for all other nontraded REITs.

“There is no reason to disclose discount rate and cap rate assumptions and sensitivities and not the assumed growth rates,” McCann said. “Blackstone REIT made no mention of growth rates for 72 monthly [SEC filings] and then in November 2022 for the first time disclosed that it had been assuming high single-digit growth rates for its two main segments and acknowledged this as a key assumption along with discount rates and cap rates it was detailing.”

Still, McCann said, Blackstone REIT did not disclose for how long it had been assuming “high growth rates” and how that affected valuations.

After first reporting that number in November 2022, Blackstone REIT still monthly uses the term “high single digit” in assuming growth in net operating income.

Though all of the REITs report NOI income figures quarterly, none of the 10 NAV REITs reviewed by CoStar News disclose a number for their NOI growth assumptions.

McCann acknowledged this is a concern across the nonlisted REIT spectrum and not just confined to Blackstone REIT.

“We stand by our rigorous valuation process, which is virtually identical to the one we use for our open-ended, institutional vehicles and has been validated by $20 billion of assets sold at a premium to NAV since 2022," Blackstone REIT said in an email to CoStar News.

In a recent filing with the SEC, Blackstone REIT reported that, not including data centers, its total portfolio continues to perform, generating a 4% estimated same-property NOI growth for the past quarter.

This story was updated May 23 to elaborate on how net asset values are understood in the REIT industry.