Bluerock Private Real Estate Fund Faces Heavy Losses After Listing
The transition of the Bluerock Total Income + Real Estate Fund to a publicly listed entity has resulted in significant challenges, with the fund trading at a staggering discount of over 40% to its net asset value (NAV) shortly after its debut. This development has erased years of gains in merely two days of trading, raising concerns about the implications for investors and the broader market for private funds.
Investors had previously approved the listing, hoping it would provide greater liquidity. However, the outcome has exposed the inherent risks associated with private asset-focused products, particularly those that are semi-liquid. Following a recent decision by the Securities and Exchange Commission (SEC) to permit portfolios with substantial private fund holdings to be traded publicly, Bluerock’s situation serves as a critical case study for the market.
As an interval fund, Bluerock Private Real Estate struggled to maintain liquidity as its investments in illiquid private real estate funds hampered its ability to meet investor redemptions. Since December 2022, requests for repurchases consistently exceeded the fund’s obligation to repurchase only 5% of shares each quarter. This trend persisted for several years, leading to increased pressure on the fund as it underperformed compared to more liquid real estate indices.
To manage redemptions, the fund resorted to raising cash by redeeming shares from its underlying private fund positions, despite these not always offering regular liquidity. Consequently, the proportion of assets in private funds without periodic liquidity surged from 5.4% in September 2022 to almost 30% by September 2025. Simultaneously, the fund continued to distribute income to shareholders, further complicating its liquidity problems. According to its last annual report, Bluerock had $667 million in cash from operations, while combined net redemptions and distributions reached $803 million.
The decision to list on the New York Stock Exchange was intended as a long-term solution, enabling investors to sell shares at market prices rather than relying on the fund to repurchase them. This strategy emerged after the SEC revised its regulations regarding the proportion of private funds in closed-end funds. While the move was intended to enhance liquidity, it ultimately resulted in the fund trading at a significant discount, reversing all prior gains within days.
Bluerock’s investors, who overwhelmingly supported the listing with over 80% of votes in favor, faced a stark choice: remain as an interval fund with limited liquidity or accept a listing that allowed for immediate sales, albeit at a substantial discount. The trading volume was notable, with approximately 5 million shares changing hands on the first day and another 9 million on the second, indicating a willingness among investors to hold their positions in anticipation of a rebound toward NAV.
The potential for NAV convergence remains uncertain. While many closed-end funds typically trade below their NAVs, it is uncommon for a fund to maintain such a deep discount. Bluerock’s unique situation—predominantly invested in private funds—complicates the outlook for recovery. Unlike other real estate closed-end funds that often hold publicly traded assets, Bluerock’s portfolio lacks observable market prices, undermining the likelihood of a straightforward reversion to mean valuations.
Furthermore, the fund’s yield dynamics do not favor recovery. The projected yield of 9.1% places Bluerock in the middle of its peer group, but if the market price and NAV eventually align, the yield will inevitably drop. This decline could deter yield-seeking investors, perpetuating the cycle of selling pressure and hindering any hope for convergence.
This situation underscores the importance of effective liquidity management in semi-liquid structures. Without sufficient organic liquidity or inflows, meeting persistent oversubscribed redemption requests becomes increasingly difficult. While certain asset classes, such as credit, can generate predictable cash flows, private equity and real estate investments often face challenges due to their lumpier cash generation.
Investors seeking exposure to private markets through semi-liquid vehicles must prioritize liquidity management in their due diligence. When fund managers propose a listing that allows for sales at discounts to NAV while continuing to collect fees on nondiscounted NAV, it highlights a disparity in benefits—often favoring the asset manager over the investor. The Bluerock experience serves as a stark reminder of the complexities and risks associated with such strategies in the evolving landscape of private investments.
