Private Real Estate – Lemonade Out of Lemons?

Real estate is one of the most intuitive investments for everyday investors. It’s tangible. It can generate income. And most people can picture why a rising population and more housing or commercial demand should support long-term value.

I’ve long believed real estate deserves a place in clients' (and my own) portfolios.

Three Ways to Invest in Real Estate

Investors generally access real estate in one of three ways:

Direct ownership - Purchasing and managing a home, rental property, or commercial building yourself. This approach offers maximum control and potential tax benefits, but requires hands-on management and concentrates risk in a small number of properties.
Public markets - Investing through publicly traded REITs or listed real estate funds. These vehicles provide daily liquidity and broad diversification, but prices tend to fluctuate with the stock market, sometimes obscuring underlying real estate fundamentals.
Private real estate - Investing through private funds that own or invest directly in real estate assets, mostly larger properties like apartment communities, office buildings, warehouses, or shopping centers. These funds typically offer less liquidity and less frequent pricing, but aim to provide steadier income, reduced volatility, and returns more closely tied to property-level performance.

Each approach has its trade-offs between management responsibility, liquidity, diversification, and day-to-day pricing transparency.

Why I’m a Fan of Private Real Estate

Private real estate offers tangible assets, steady income, and diversification without the hassles of hands-on management and stock market correlation. Large institutions (pensions and endowments) have used private real estate as a core portfolio sleeve for decades.

Accessing private real estate can be difficult. Over the last 10 years, I’ve accessed this area through private real estate “interval” funds. These funds offer access with some liquidity, lower minimums, simplified tax reporting, and tax-efficient income.

The Fund

Since 2022, I’ve accessed private real estate through the Bluerock Private Real Estate Fund (ticker: BPRE). This fund gives investors access to a diversified portfolio of institutional private real estate strategies, wrapped inside a single vehicle.

Today, BPRE is a $3.8 billion fund that invests alongside more than 30 established private real estate managers, with investments in more than 5,400 underlying properties across the US. The fund focuses on high conviction sectors: industrial, residential, and specialty, and has virtually no exposure to the office sector.

Until recently, the fund was known as the Bluerock Total Income+ Real Estate Fund, an interval fund that limited quarterly liquidations to no more than 5%. In December, the fund relisted as a closed-end fund under the ticker BPRE, allowing shares to trade daily at market pricing.

The News: Conversion and Price Drop

When the fund converted to allow more liquidity on December 16th, the trading price dropped sharply. This price decline was driven by the transition to daily trading in the open market. Importantly, the fund’s management, expenses, and underlying real estate portfolio remained intact.

A Simple Analogy: Townhome Auction

Imagine a small community of townhomes (100 of them, independently appraised at $250,000 each) that have been restricted from selling for the last year. Suddenly, the restrictions are lifted, and an auction pops up in the street, with five bidders offering $140,000 per home. Three of the owners accepted the lowball offers for personal or timing-related reasons. Seeing these transactions, two other owners chose to sell their properties for similar prices. The following week, real estate websites show the value of the community’s townhomes to be in the $150,000 range, not the $250,000 an appraiser had provided the week before.

That’s similar to what happened with BPRE. When the fund’s shares became tradable daily, a wave of sellers met a small group of buyers, and the market price dropped sharply. This is not because the underlying assets deteriorated overnight, but because of how markets react when liquidity arrives all at once.

Why I’m a Buyer at This Discount

Watching an investment lose money is never pleasant. It’s natural to be emotional and reactive when prices drop dramatically, so I focus on evidence rather than emotion. After several discussions with the Bluerock team, reviewing the fund’s disclosures, and watching all the management webinars, I’ve decided to continue to own the fund and be a light buyer at these discounted prices.

Here is how I currently assess the fund’s prospects:

Private real estate is a solid asset class – This remains a compelling asset class for income and diversification, and current private real estate pricing looks very attractive.
Fund leadership is not ideal – I disagreed with the decision to change the fund’s structure from the very beginning, but my votes did not sway the crowd. Although there are certainly advantages to the new fund format, I’m skeptical of management’s motives for making the change.
The fund is invested in attractive real estate pockets – Focusing on warehouses, residential, manufactured housing, and data centers, and away from the office buildings, looks smart to me.
I expect the fund’s discount to narrow – The fund is currently trading roughly 33% below the underlying value of the properties. The fund will benefit if this pricing gap narrows over time.The fund is paying a nice monthly dividend – The fund is currently yielding 8.3%, and is supported by ongoing rental income and high occupancy levels. Because real estate income can offer tax advantages, after-tax yields can be in the 10% to 13% range.

Although not everything is rosy, the evidence suggests this fund can deliver solid performance from here. On conversion day, the fund traded as low as $13.75; today, the fund is trading at $16.58, more than 20% off its lows. I certainly don’t expect this pace to continue, but I’ll take the solid start.

I’ll continue to monitor this fund closely and make changes if the facts or my confidence change.