A stock image shows an officer removing handcuffs from criminal's hands.
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A US soldier was detained in Russia on theft charges last week, a US Army spokesperson told NBC News.
Gordon Black was visiting a woman he was romantically involved with, US officials said.
He didn't get permission to travel to Russia from his superiors, officials told AP.
A US soldier detained in Russia on theft charges was visiting a woman he was romantically involved with, NBC News reported, citing four US officials.
Staff Sergeant Gordon Black stopped off in Vladivostok, Russia, on his way back to the US after finishing a deployment in South Korea, the officials told the outlet.
Black had traveled to Russia without prior approval from his superiors and is now in pretrial custody in Russia for allegedly stealing from a woman, the officials said, per the outlet.
The officials failed to identify the woman, or to specify whether she was the same one he was romantically linked with.
The US Army didn't immediately respond to Business Insider's request for comments.
In a statement to NBC News, US Army spokesperson Cynthia O. Smith said Black was arrested on charges of criminal misconduct last Thursday, that the Army had notified his family, and that the State Department was providing appropriate consular support.
Smith declined to make further comments due to the "sensitivity" of the matter.
Several US officials told the Associated Press that Black was preparing to go home to Fort Cavazos in Texas from South Korea, but instead traveled to Russia to visit his "longtime" girlfriend.
The Russian woman, who previously lived in South Korea, got into an argument or fight with Black last fall and left the country, the officials told AP.
It's not clear if she was compelled to leave and how involved the Korean authorities were, if at all, per AP.
Black did not inform his unit of his plans to go to Russia, the officials told the news agency.
The 34-year-old will be detained on charges of theft until July 2, according to Russian state-run news outlet RIA Novosti, which cited an official at a regional court.
The State Department has issued a level 4 travel advisory for Russia, with Americans warned not to travel to the country due to Russia's ongoing war in Ukraine, the potential for harassment, and the singling out of US citizens for detention by Russian security officials.
Black is not the only current or former US soldier to be detained in Russia.
Paul Whelan, a former US Marine, was convicted on espionage charges in 2018 and sentenced in 2020 to 16 years in prison.
US Marine veteran Trevor Reed was arrested in Moscow in 2019 after being convicted of drunkenly attacking Russian police officers during a visit to the country.
A rendering of The Line, part of Saudi Arabia's Neom project.
NEOM
Neom planners are worried The Line will kill a large number of birds, The Wall Street Journal reported.
The futuristic mirrored structure is on a migration route used by billions of birds.
The Line comprises twin 1,640-foot-high towers 656 feet apart.
Neom planners seem worried that the megaproject's mirrored "horizontal skyscraper" will kill a "significant number of birds."
According to documents reviewed by The Wall Street Journal, the concerns relate to the location of The Line, which is on a migration route used by billions of birds.
In planning documents, designers wrote that it was "inevitable that a significant number of birds will perish," illustrating their concerns with a drawing of a dead northern flicker, per the report.
In a February promotional video for Neom, chief development officer for The Line, Denis Hickey, said he saw the project as an "opportunity to create a better model for a city to interact with the landscape and nature and the environment."
He said developers believed "The Line is going to be an example to the rest of the world."
Plans for The Line are already architecturally challenging.
The structure is designed as twin 1,640-foot-high mirrored towers set 656 feet apart. According to Neom's website, it will also have no roads, vehicles, or emissions and run on 100% renewable energy.
The Line was originally planned to accommodate nine million people by 2030. However, a recent report from Bloomberg siad this estimate has been lowered to fewer than 300,000 people by that date.
Clapper probably isn't the place for Gen Zers unless loads of them sign up en mass.
Matt Cardy/Getty Images, Clapper
The clock is ticking for ByteDance to sell its US TikTok operations.
Clapper, a similar video platform, has been tested by creators as a potential alternative to TikTok.
Despite an increasing user base, it doesn't seem like somewhere Zoomers will flock to just yet.
The clock is ticking on ByteDance after President Joe Biden signed a bill last month that declared the company has to sell its US TikTok operations or face the app being banned in the US.
Some have been trying out Clapper — a video platform that looks a lot like a TikTok dupe, which was set up mainly for millennials and Gen X users.
The app's founder, Edison Chen, described it as "a space for the older generations to feel more comfortable" in an interview with D Magazine last year and somewhere "the parents of TikTok users can express themselves."
In a blog post from 2022, Chen also said Clapper is not about videos becoming viral but about building a community and making friendships.
Some of its features highlight this focus. For example, the "Nearby" feature allows creators to see content made by people close to their location to find friends and connect with like–minded people.
The app also encourages users to use hashtags to connect them to creators with similar audiences.
Otherwise, if you can use TikTok, you can probably use Clapper. It's set up almost exactly the same way, with a "Following" tab and a "For You" tab and buttons for liking, commenting on, and sharing a video in the same place.
Some videos on Clapper's For You feed.
Clapper
I'm not a parent, but I am a millennial. Like many in my age bracket, I'm also an avid TikTok user. Data from the Pew Research Center suggests that 40% of people on TikTok are in their 30s and 40s.
The dominant demographic on TikTok, though, remains Gen Zers, with various surveys estimating that somewhere between 50% and 76% of this age group use it.
Could Clapper be the next big thing among Zoomers if TikTok disappears? I'm not so sure.
Mixed reviews
A Clapper spokesperson told Business Insider the app has doubled its user base every year for the past three years, and daily active users have grown 400% since 2020.
The spokesperson said that since the House voted on a TikTok ban, Clapper has seen 30,000 new users. There are more than two million monthly active users currently, according to the latest estimates.
While the app heavily leans on Gen X and Y, the spokesperson said Clapper is adjusting its strategy "to appeal to younger audiences."
But reviews (posted to TikTok) have been mixed so far.
One creator, Shannon Lee, described the app as "kind of laggy." Another creator, named Allie, said: "It's pretty much like a clone of TikTok, but it does not compare in the slightest."
Others like it, though. Rebecca Starkey, a creator with over 500,000 followers on TikTok, said she enjoyed that it is ad-free, that users had to be at least 17 years old, and that every video that shows up on the For You page has the same opportunity to go viral.
Other positives include an absence of filters and the fact that creators can start earning money immediately — unlike TikTok, where you have to have 10,000 followers before you can join its Creator Rewards Program.
I attempted to train my Clapper algorithm to feed me the content I wanted to see.
It's not totally fair to compare it to TikTok, which has known me and my tastes for years. Overall, though, I found the content on there a bit outdated.
My feed is full of cringe skits and pranks, as well as clips of people misjudging stunts and injuring themselves, reminiscent of "getting owned" compilations of the earlier internet.
Some recent videos served to me include a woman pretending to collapse in front of her partner and a gym-goer shrieking for help with her too-heavy weights. There are also some questionable comedy sketches on there that verge on sexism and give an overall air of lawlessness.
BI reached out to Clapper for comment on its policies, though its terms of service prohibit nudity and violence, impersonation, and posting content that isn't your own.
It would remind me a bit of early Vine, but a lot of content I'm being served seems to be reposted old clips scraped from YouTube and other platforms.
I didn't come across any of this in my week on Clapper, but I did see plenty of other Facebook-generation content.
There are loads of videos about inspirational sportspeople and animal rescues, tailored to the people who are still enjoying the feel-good nature of Facebook's algorithm.
There are significantly fewer ads. Some creators are promoting products, but you're nowhere near as inundated with things to buy as you are on TikTok.
The main thing that's missing for me right now on Clapper is what the app claims to stand for — community. On Clapper, I'm watching without really thinking. It's rage bait without substance. It's consumption culture without an edge. I mean, what even is this?
Clapper is in its early stages, and that's fine. It takes a long time to build a social media circle, and it may just be I haven't found my people on there yet.
I don't think Clapper will see a huge uptick in Gen Z users unless there's a mass exodus there that can help it form more consistency and depth. This has happened before with Viners flocking to YouTube in 2016, so never say never.
Clapper is definitely providing something. But right now, I don't think it's quite what Zoomers are after.
But as the sale proceedings went on, legal challenges piled up as people laid claim to Alfa Nero, and Schmidt backed out of the deal.
It didn't take long for him to rebound, though. In September 2023, just three months after he won the Alfa Nero auction, the billionaire purchased Kismet, renaming her Whisper, Business Insider has learned.
A spokesperson for Schmidt declined to comment to Business Insider.
Schmidt's yacht — which he renamed Whisper — boasts two helicopter pads, one of which becomes a basketball court.
Marcus Brandt/picture alliance via Getty Images
The 95-meter-long yacht, built by the renowned German shipyard Lürssen and delivered in 2014, was formerly owned by the Jacksonville Jaguar's billionaire owner, Shahid Khan — hence images of the cat featured on her figurehead and throughout her decor.
Whisper, which can fit at least a dozen guests and a crew of 28 features a master deck with a private jacuzzi, as well as a full-service spa, lap pool, hammam, and outdoor fireplace. Made for entertaining, the megayacht has a cinema, a grand piano, and two helipads — one of which doubles as a basketball court and the other than transforms into a disco.
Her interior was designed to "create a feeling of relaxed opulence, based on a 'Champagne & Caviar' theme," according to the brokerage that sold the ship.
While the yacht's final sale price was not public, she was listed for 149 million euros (about $161 million at current exchange rates).
At a charity auction in January, one week aboard the ship went for $2.4 million, according to industry outlet Yacht Charter Fleet — a steal, considering she typically goes for $3 million a week.
A Florida Gen Xer who made over $300,000 last year secretly working multiple remote jobs says he's "far from rich." The subject of the story is not pictured.
howtogoto/Getty Images
A Florida-based Gen Xer made over $300,000 in 2023 secretly working multiple remote tech jobs.
While the extra income has allowed him to travel more, he still feels "far from rich," he said.
He shared how his higher income has impacted his relationships and how he's spending the money.
In 2021, Robert was making roughly $180,000 a year from his tech job, but when his workflow slowed, he feared a layoff may be coming soon.
He decided to start looking for another role and eventually found one that paid $190,000 a year, he previously told Business Insider via email. But before he resigned from his current job, he recalled hearing about a former coworker who was making several hundred thousand dollars secretly working two jobs.
After thinking it over, Robert decided to try to juggle both roles at the same time. That choice changed his life.
In 2023, Robert earned over $300,000 across multiple remote roles, according to documents viewed by BI. He said the extra income allowed his partner to quit their job and made it possible for him to take several expensive vacations, including a roughly $20,000 cruise.
The Gen Xer, a Florida resident, is among the "overemployed" Americans who are secretly working multiple remote jobs to boost their incomes. Over the past year, Business Insider has interviewed more than a dozen job jugglers, many of whom are in the IT and tech industries, who've used the extra money to pay off debt, save for retirement, and afford weight-loss drugs. While some employers may be fine with their workers having a second job, doing so without company approval could have repercussions if a worker is found out.
For Robert, the income from multiple jobs decision has made it possible for him to travel more. Over the last few years, he estimates he spent between $28,000 and $35,000 in total annual travel expenses. Some of his recent trips included Yellowstone, the Galápagos Islands, and Las Vegas.
"We now spend a lot more time on vacations," he said. "We spend a lot on travel because life is more about experiences and memories than material things."
Still, Robert considers himself to be "far from rich," in part because it takes more than a couple of years with a higher income to ensure financial security in the long term, he said. He experienced several job separations in the past, so he knows his jobs aren't guaranteed to last. Additionally, he said he made some bad decisions when he was younger that set back his finances.
"We don't live an extravagant life by any means," he said.
Robert sharedhow earning morehas impacted his relationships with his partner and family — and how he's spending the money.
The extra income goes to travel, food, home, and family
Robert said making more money hasn't changed his relationship with his partner much. But it has been good for his relationships with his family, as it's made it possible for him to visit them more often.
He said it's also allowed him to provide some family members with financial support — he estimated that he spends about $5,000 to $6,000 a year helping outrelatives. But finding the right balance can be tricky.
"I am careful with that because I know financial help to some actually is a disservice and prevents people from pushing themselves to succeed," he said.
Aside from family and travel, Robert said he spends most of his money on food and his home.
Food is something he doesn't typically budget for, but these expenses can add up, particularly when he travels, he said. On a five-day trip earlier this year, he said he spent about $700 on food, including $225 on one meal for himself and two family members. He estimated that in the typical month, he spends between $1,500 to $2,000 on food.
"We eat well," he said. "I grew up poor with little to no good food and that is something I do not skimp on."
Robert's housing expenses include a monthly mortgage payment — he said he has about $380,000 left on his loan balance.
He's also putting over $100,000 into refurbishing his home, according to documents viewed by BI. He saidthis money is going toward a new deck with a high-end hot tub, his basement, and an over 1000-square-foot garage, which he said will be used for two vehicles, a gym, and storage. He said he's taken out loans to fund some of this spending.
Additionally, Robert said he's bought two vehicles in recent years, — both of which are mostly paid off — and that he tries to put as much money in his 401(k) account as he can.
However, Robert said he's not satisfied with the stateof his finances.
"My partner and I would like to have no debts in five years unless we invest in a vacation home for us and the family," he said. "We would also like to have $250,000 saved up in six or seven years which is separate from our retirement accounts."
Are you working multiple remote jobs at the same time and willing to provide details about your pay and schedule? If so, reach out to this reporter at jzinkula@businessinsider.com.
New Bank of America Institute data reveals gig driving continues to get more popular.
Jeffrey Greenberg/Universal Images Group via Getty Images
Gig work, in particular ride-hailing for companies like Uber and Lyft, is getting more popular.
Some Americans are turning to it as cost-of-living pressures persist and the job market slows.
It might not be the solution for everyone in need of extra income.
More and more Americans are taking up gig work for companies like Uber and Lyft — in part because some have fewer options to land high-paying jobs.
The share of Bank of America customers receiving income from ride-hailing nearly tripled from less than 0.4% in March 2020 to about 1.2% as of March, exceeding pre-pandemic levels, according to a Bank of America Institute report that analyzed internal company data and was published in late April. Among BofA customers, ride-hailing became the most common source of gig income over the last year, passing deliveries, vacation rentals, and social commerce.
BofA also found that many more Americans are going "all in" on gig work. The share of gigworkers who received gig income every month of the year increased from about 3%in the 12 months preceding February 2023 to 4% in the 12 months preceding February 2024 — much of this growth came from ride-hailing. Since 2022, it's become increasingly common for gig workers not to have a traditional job, compared to those who do it as a side hustle, BofA found.
In April, the sectors that added the most job growth were lower-paying, includingretail trade, wholesale trade, transportation and warehousing, and healthcare and social services. Higher-paying sectors, including manufacturing, construction, and professional services, saw slower job growth. What's more, the unemployment rate rose to 3.9%, up from 3.8% in March.
Additionally, a recent Vanguard report found that the hiring rate has held steady for workers who earn less than $55,000 a year, but has fallen for workers in the top third of earners, who make over $96,000,to its lowest level since 2014.
"Where there's been job growth has not been sectors where there has been high wage growth," Kate Bahn, the chief economist and SVP of research at the Institute for Women's Policy Research, previously told BI.
BofA noted that growth in gig employmentlike ride-hailing slowed in 2022 when rising wages led more workers to pursue traditional jobs. But as wage growth slowed in 2023, the number of gig workers began to tick up again, BofA found. In January 2023, wages rose 6.3% compared to the prior year, according to the Atlanta Fed. By November, this had fallen to 5.6% and was 5.2% as of March 2024.
Why ride-hailing is getting more popular
The BofA report gave several reasons Americans in need of cash might be flocking to ride-hailing in particular.
BofA hypothesized that ride-hailing's growth, relative to a gig like food delivery, may have been driven by a shift in Americans' spending patterns as pandemic conditions have eased.
"This mirrors the pivot in consumer spending towards out-of-home services and away from in-home services and goods, with more people eating out, for example, rather than ordering in," the report said.
Additionally, BofA found that people with ride-hailing income earned, on average, more a month than those who did delivery gig work. Vacation rental was the highest-earning gig BofA measured, but this is only accessible to people with a home to rent out.
Lastly, BofA said that some people who valued public transportation pre-pandemic have shifted to using ridesharing for some trips, given that demand for public transportation is well below pre-pandemic levels while traffic levels are about equivalent.
Younger generations account for much of the rise in ride-hailing numbers.
BofA found that ride-hailing was the most common gig for millennials and Gen X. More than 30% of all gig workers in these generations had ride-hailing income, compared to about 20% for Gen Z and 25% for boomers.
While some young peoplecould value the supplementary income gig work can provide — particularly if they're struggling to pay the bills — others may end up disappointed.
Ann Arbor, Michigan is one of many US cities piloting guaranteed basic-income for some low-income residents.
pawel.gaul / Getty Images
Ann Arbor is providing 24 monthly payments of $528 to low-income residents.
The guaranteed basic-income program focused on entrepreneurs, small business owners, and gig workers.
Past GBI participants reported using the money to pay for rent, groceries, and medicine.
Guaranteed basic income helps low-income Americans pay rent and support their families, and Ann Arbor, Michigan is using the model to try something new: helping local entrepreneurs.
Ann Arbor's program, called Guaranteed Income to Grow Ann Arbor, is giving low- and moderate-income residents $528 a month, no strings attached. The GBI pilot will specifically benefit entrepreneurs, small business owners, and gig workers.
Monthly cash payments began in January and will continue through the end of 2025. Eligible participants have an income at or below 225% of the federal poverty line — which is $32,805 for an individual and $67,500 for a family of four.
Throughout the US, guaranteed basic income has become an increasingly popular poverty-solution strategy. Over 50 municipalities have tried the GBI model since 2019, offering low-income participants between $100 and $1,000 a month, no strings attached for one to five years.
The program eligibility requirements also list a broad definition of entrepreneurship: participants can have side hustles, be independent contractors, own small businesses, or hope to start a small business. Local musicians and artists who met the income criteria could also apply.
"Starting and sustaining a business is a dream of many people, yet for those with lower incomes, it can be a difficult dream to achieve," program researchers wrote. "This pilot will help us learn whether guaranteed income payments can be an effective way to help some entrepreneurs with their business efforts."
Basic income differs from traditional Social Services because participants can use the money however they choose, instead of on specific spending categories. GBI participants in cities like San Antonio and Denver told Business Insider that cash payments allowed them to secure housing, afford groceries, pay off debt, and buy clothes and school supplies for their children.
"You're deciding what's best for your family, you're the expert on your family," Monique Gonzalez, a participant in San Antonio's GBI program, previously told BI. "Being able to utilize these funds in a manner that puts you back into control — it boosts your confidence."
Ann Arbor GBI pilot could help low-income entrepreneurs build their businesses
Before launching Guaranteed Income to Grow Ann Arbor, the city was already a hub for technology and small businesses. Nearly half of the startup companies in Michigan are located in the Ann Arbor area, according to an entrepreneurial ecosystem report of the state by the nonprofit research company Entrypoint.
The city is pulling $1.6 million for the GBI pilot from the 2021 American Rescue Plan Act, pandemic-era economic recovery funds that have commonly been used to fund basic income. The Ann Arbor Area Community Foundation also contributed money, and the University of Michigan will be paying the salaries of program researchers.
The program is a randomized control trial: of the total 200 participants enrolled, 100 people will receive payments, while the other 100 will not. All participants will be surveyed about their experience by researchers at the University of Michigan.
Similar to Ann Arbor, more GBI pilots are choosing to provide assistance to specific demographics. For example, a program in Atlanta is open to low-income Black women, a program in Denver provides aid to people experiencing homelessness, and Flint, Michigan's program is giving funds to new mothers.
And, in light of past success, new programs are being created. Chicago announced in April that it restarted its previous GBI program that offered low-income residents $500 a month.
Even so, GBI continues to face opposition from Republican state legislators.
A GBI program in Harris County, Texas is being challenged by Attorney General Ken Paxton, who called the program "unconstitutional." While the state Supreme Court is reviewing the case, 1,928 families will not receive their cash payments, which were set to begin April 24.
Other lawmakers have called basic income "socialist," and said it will make low-income people too dependent on government assistance. Iowa, Arizona, and South Dakota have also all made efforts to ban GBI programs.
Have you benefited from a guaranteed basic-income program? Are you open to sharing how you spent the money? If so, reach out to this reporter at allisonkelly@insider.com.
Kevin Scott is chief technology officer of Microsoft.
Microsoft
Kevin Scott said Microsoft's partnership with OpenAI was a strategic "bet" on Sam Altman's company.
The Microsoft CTO gave insight into its investment in the ChatGPT maker on the "Possible" podcast.
Scott said Microsoft thought working with OpenAI would "push us to build better infrastructure."
Microsoft's chief technology officer said partnering with OpenAI was "basically a bet" on Sam Altman's company.
Kevin Scott gave insight into his decision-making that led to Microsoft's alliance with OpenAI in 2019 on an episode of Reid Hoffman's podcast "Possible" last week.
"This partnership with OpenAI was like basically a bet saying this particular team at the time also understood that this was a game of scaling, compute and doing incredible things with it in a very disciplined way," he said.
Scott, who's been Microsoft CTO since 2017, said he realized pretty early into his tenure that the progress of AI was accelerating.
For Microsoft to remain competitive, he knew it had to advance its infrastructure, which he started to think about how to build in 2018.
The email, which was recently made public as part of the Department of Justice's antitrust case against Google, had the subject line "Thoughts on OpenAI." It was sent just weeks before Microsoft announced its $1 billion investment in OpenAI and subsequent partnership. A large section of Scott's email was redacted.
Scott also told the podcast that the key drivers behind the partnership were knowing Microsoft couldn't do everything by itself, and realizing OpenAI could forecast what it could get from investing in computing.
"And I was like, 'if we work with them, they will push us to build better infrastructure, and we can enable them to do their best work'," he said.
Microsoft is building its own large language model (LLM) to take on those from Google and OpenAI, The Information reported on Monday. The new model, called MAI-1, will have roughly 500 billion parameters, the report said. OpenAI's GPT-4 is thought to have about one trillion parameters.
Scott appeared to confirm the report about MAI-1 in a LinkedIn post on Monday: "Microsoft, and the teams making and operating things on occasion need to do their own custom work, whether that's training a model from scratch, or fine tuning a model that someone else has built."
He added: "There will be more of this in the future too. Some of these models have names like Turing, and MAI. Some, like Phi for instance, we even open source."
Microsoft didn't immediately respond to a request for comment from Business Insider, sent outside normal working hours.
In 2017, Blackstone — the world's largest private-equity firm, which usually caters to big institutions and the very wealthy — decided to give ordinary investors an opportunity to get in on the firm's magic. It created BREIT, a private fund that buys commercial real estate like warehouses and apartment buildings, and marketed it to everyday investors as an "all-weather strategy to build long-term wealth across market cycles."
And it was magic: By offering an annual dividend of about 4% in a world where interest rates were close to zero, BREIT quickly became a giant. At its peak in 2021, the fund was attracting as much as $3 billion a month in new investments. Today, BREIT boasts assets of $114 billion — about 8% of Blackstone's entire fee-earning assets — and has generated over $5 billion in management and performance fees.
But over the past two years, some investors have grown suspicious that BREIT isn't the rock-solid investment Blackstone claims it is. Since its inception, the fund says it has delivered an annualized net return of 10.5% — almost double an index of publicly traded REITs. Even as commercial real estate has been battered in the wake of the pandemic, BREIT has somehow managed to defy gravity, outperforming comparable funds by seemingly fantastic margins. In the fall of 2022, after the Fed's interest-rate increases began to shake the commercial real-estate market, investors began asking for their money back — more than $15 billion to date. Faced with a run on the fund, Blackstone cited a provision that allowed it to take its time refunding antsy investors — a decision that only served to further alarm the market. Shares in Blackstone tumbled by nearly 20%. Last year, BREIT failed to generate enough cash to cover its annual dividend.
In recent months, the fund has appeared to recover from the debacle. BREIT announced it was able to fulfill 100% of the repurchase requests it received in February, which had slowed to just under $1 billion. Amid the promise of a rebound, Blackstone's stock has regained almost 50% from its lows. "I believe we'll look back at 2023 as the cyclical bottom for our firm," Steve Schwarzman, Blackstone's CEO, told analysts at an earnings call in January.
Investors in Blackstone's real-estate fund asked for their money back in droves — more than $15 billion to date.
Jeenah Moon/Reuters
But the rosy picture that Blackstone paints may not tell the whole story. In recent months I've spoken with veteran analysts, accountants, and investors who have come to believe that BREIT is essentially a house of cards. That's because the returns the fund claims it has delivered depend almost entirely on BREIT's own estimates, which skeptics believe are wildly inflated. What's more, when BREIT faced a flood of redemption requests from investors, it only fulfilled all those requests after raising cash from new investors — including one that received a sweetheart deal from Blackstone to invest in BREIT. "It is the absolute definition of a Ponzi scheme," said Nate Koppikar, who runs a hedge fund called Orso Partners that has shorted Blackstone's stock because of concerns over BREIT. Unless the real-estate market comes roaring back, analysts warn, BREIT could end up shrinking to a fraction of its current size,leaving the fund's investors holding the bag.
"Surveying some of the ways that Blackstone has misled investors over the past five months, we are more convinced than ever that BREIT is a bad investment created for the benefit of Blackstone," Craig McCann, a financial analyst who served as an economist at the Securities Exchange Commission, wrote last year. "Investors should not accept anything Blackstone and BREIT state as truthful."
It's impossible to know exactly how valuable BREIT is. Because the fund is not publicly traded, the market doesn't set its price per share — Blackstone does. You buy shares in BREIT based on your faith in Blackstone's investing brilliance and in the firm's account of its own performance. Investing in a private real-estate trust like BREIT is, ultimately, an exercise in trust.
BREIT's returns are based on a measure called net asset value, or NAV. That's supposed to be the value of all the assets the fund owns, minus its debt. Blackstone told Business Insider that it has an "incredibly rigorous valuation process" — one it says has led it to adjust its NAV more aggressively than other REITS. But BREIT doesn't let investors or regulators see some of the crucial assumptions that go into calculating its NAV. As BREIT's financial documents state, Blackstone "is ultimately and solely responsible for the determination of our NAV." The methods used to calculate it are "not prescribed by rules of the SEC or any other regulatory agency," and the NAV "is not audited by our independent registered public accounting firm."
Chilton Capital Management, which invests in publicly traded REITs, analyzed the way Blackstone adjusts the value of BREIT to reflect changes in the underlying real estate it owns. Rather than being "marked to market" every day — or every millisecond, like public REITS — Blackstone adjusts its NAV on a monthly basis. In today's volatile real-estate market, that means its stated value can lag way behind reality. "It inherently is a flawed process when prices are changing quickly," Chilton observes. "We refer to this imperfect appraisal process as 'mark to magic.'" In 2022, after the crash in commercial real estate, publicly traded REITs that own assets similar to BREIT's — multifamily housing and industrial buildings — have been selling at sharp discounts. But BREIT, by "marking to magic," has continued to claim far higher returns. Using a collection of market-based metrics, Chilton concluded last April that BREIT was overstating the value of its NAV by more than 55%.
McCann, who is now a principal at SLCG Economics Consulting, reached a similar conclusion. He calculated that the cumulative returns of other funds in the sectors in which BREIT is concentrated plunged by over 30% in 2022. Yet BREIT claimed that its value increased during the same period. In the dry language of market analysts, McCann called the fund's claims about its NAV "unreliable."
Blackstone considers such comparisons unfair. It insists that BREIT shouldn't be compared to publicly traded funds, which it argues are more volatile than private offerings. In a statement to BI, the firm insists that BREIT is able to outperform other funds for a simple reason: because it owns better assets than they do. BREIT's portfolio, Blackstone says, is "concentrated in the best performing sectors (data centers, logistics and student housing) and geographies (virtually no urban exposure)." Only 3% of BREIT's holdings are in office buildings, which have been ground zero for commercial real estate pain. The company points to its performance during the global financial crisis of 2008 as evidence of its ability to outperform its competitors during "periods of dislocation" and notes that it has sold $20 billion of real estate since the beginning of 2022, when interest rates began to rise, generating a profit of $4 billion.
"Not all real estate is created equal," BREIT boasted in a recent letter to stockholders, "and where you invest matters."
One of four commercial centers Blackstone owns near Lisbon. The company argues that BREIT's valuation remains high because the assets in its portfolio are superior to those in other funds.
Horacio Villalobos/Getty Images
But Blackstone's principal claim — that sounder investments have led to higher returns — is difficult to square with the ongoing decline of commercial real estate. It's hard to fathom how BREIT could have bought so many properties at the height of the market and yet somehow been selective enough to have dodged all the post-pandemic downturns suffered by other funds. According to BREIT's own numbers, data centers and student housing make up only a small part of its portfolio. And many of the data centers Blackstone says have already created so much value for the fund aren't even up and running yet — they're still in development.
Publicly traded REITs, meanwhile, aren't the only ones marking down their assets. Bluerock Total Income + Real Estate, which has over $300 billion invested in a host of institutional real estate funds, has marked its NAV back to pre-pandemic levels — down more than 20% from its peak. Other major investors, unlike Blackstone, apparently don't see their real estate holdings as immune from the chaos buffeting the rest of the market.
Blackstone also argues in its marketing material that BREIT is better positioned than other real-estate funds because its balance sheet is "substantially hedged," meaning it has fixed-rate debt and derivatives in place that protect against rising interest rates. That's true — for the moment. But BREIT's future cash flows are, in fact, very sensitive to interest rates. At the end of last year, BREIT had $62 billion of debt secured by its properties, and it paid an effective interest rate of 4.3% that it locked in before rates spiked. But $47 billion of that debt will come due over the next four years — and if rates stay elevated, BREIT could face over $1 billion in added interest costs. That, BREIT has warned investors, "could reduce our cash flows and our ability to make distributions to you." Investing in BREIT is essentially a bet that interest rates are going to fall — because if they don't, it could be ruinous.
You might argue that it ultimately doesn't matter if BREIT is overvaluing its NAV. As long as investors keep getting their hefty annual dividends, who cares? That's basically the same argument that Donald Trump made in defending himself against charges of systematically overstating his assets — that everybody made money, so no one was defrauded. But miscalculating the value of a vehicle like BREIT inflates the fees investors pay for participating in the fund while simultaneously depriving them of the opportunity to accurately assess the risk they're taking. In addition, Blackstone is incentivized to overvalue its NAV, because that's the number it uses to calculate the management and performance fees that investors pay. "It's a text-book example of conflict of interests," Robert Chang, the head of securities litigation at Fideres, a consulting firm that specializes in investigating corporate wrongdoing, wrote in a piece about BREIT. Fideres calculates that since early 2022, the fund's NAV per share has remained relatively stable — while public REITs have lost more than 30% of their value. If BREIT's assets are indeed overvalued, Fideres estimates, investors may have overpaid management and performance fees to the tune of hundreds of millions of dollars a year.
The alarm bells over BREIT go beyond whether Blackstone is overstating the fund's value. BREIT has said that through June of last year, 100% of its dividends were funded by cash flows from operations — the money produced by its real-estate assets. But that claim is more than a little misleading. In the measure of cash that BREIT highlights, it doesn't subtract the expenditures required to maintain its properties, which is standard for the industry. In its own fine print, in fact, BREIT does provide several other measures that are more analogous to how most REITS define cash flow; by those measures, the fund has never been able to cover its dividend from its cash flow.
No one I spoke with believes that Blackstone set out to build a house of cards. Rather, they say, BREIT was a victim of its own success.
In its response to BI, Blackstone argues that because its management fees are not paid in cash, they are "properly excluded" from some of its measures. But not being able to pay the dividend you've promised can be seen as a Ponzi-ish warning, because it means the money has to come from selling off assets, borrowing money, or attracting new investors — a reality that BREIT acknowledges on the third page of its financial documents (and one that the SEC has noted as a risk factor for all private REITS). And if you subtract Blackstone's fees, BREIT has covered less than 50% of its dividend distribution since its inception. Indeed, one of the primary reasons BREIT has been able to pay its dividends is because roughly half of all shareholders have elected to receive their dividends not in cash, but in more shares of BREIT. In other words, the game depends on the continued belief of investors — on their willingness to accept shares of BREIT in lieu of cash.
Getting paid in shares, of course, is not the same as getting paid in cash. The more shares BREIT issues to pay the dividend — and its fees to Blackstone — the less each shareis worth. "On the surface, it all looks so safe," McCann tells BI. "You're getting 4% or so a year, and you think it looks like a bond, and you think the underlying investments are doing well. Only when you dig in do you figure out that even if you're taking cash, the money is a return of capital, not a return on capital."
In 2022, when investors started asking for their money back in droves, BREIT faced a big problem. If its assets weren't marked correctly, it couldn't sell them off to pay investors without fessing up. Then the fund got what looked like a vote of confidence. In January 2023, BREIT announced that the University of California had decided to invest $4 billion in the fund, giving it a much-needed infusion of cash. Schwarzman called the investment a "validation" of BREIT's strategy.
But it wasn't. To entice the university to invest, Blackstone had offered it a special deal. BREIT agreed to award the university an additional $1 billion in stock in the event that the fund's rate of return fell below 11.25%. The deal was so sweet that UC's Board of Regents quickly agreed to invest another $500 million on the same terms.
"Contrary to Blackstone's spin," wrote McCann, "the University of California investment strongly supports the view that BREIT is a terrible investment."
Students at the University of California protested the school system's investment in BREIT, which came after Blackstone offered a special guarantee on the deal.
Michael Blackshire/Getty Images
Scoring the new investment helped BREIT pay off all those who wanted to exit the fund, albeit slowly. And for the moment, the stampede appears to have subsided.
Blackstone says that BREIT has "access to ample liquidity across multiple sources," including "$119.1 billion of high-quality real estate that can be sold at market prices if we choose to do so." But if investors stage another rush for the doors, BREIT could face a serious reckoning, especially given its high level of debt. If it has overvalued its properties, as some experts suggest, then it will have to sell its assets at a price below where they are marked. And the more shareholders it has to redeem, the faster its equity will become worthless. Those who get their money out early will be OK. Those who are last in line, not so much.
"If BREIT has to sell properties to meet redemptions, and they have to dip deeper into their portfolio to sell less desirable properties, they'll have to mark their NAV to reflect the actual sales prices," says Phil Bak, the founder and CEO of Armada Investors, a quantitative asset manager that specializes in REITs. "That could scare the people who have been clinging to fund performance as a reason not to redeem, which in turn causes a death spiral."
No one I spoke with believes that Blackstone set out to build a house of cards. Rather, they say, BREIT was a victim of its own success. Money poured in at the height of the market, meaning that BREIT invested at a moment when commercial real estate was priced to perfection. Real estate, by its nature, is always somewhat illiquid — you can't sell your share of an apartment building on the stock market. And in a bad market, it's very illiquid, especially if what you own is marked at a price where no one will buy it. But while Blackstone says it designed BREIT so investors could get their money out, it seems not to have foreseen that scores of individual investors — unlike the big institutions that have typically been its clients, who are forced to commit their funds for long periods of time — might get spooked enough to ask for their money back all at the same time. Titans of Wall Street often believe that their brilliance should insulate them from skepticism. Their supreme confidence in their own wisdom is perhaps their most marketable asset.
It's completely possible, of course, that BREIT will survive, no matter how flawed its model might be. If the real-estate market reignites, that will boost the value of the assets in funds like BREIT. And if enough new investors are willing to place bets on BREIT — if trust in Blackstone's "magic" remains high — then everyone will keep making money, if only on paper, even if BREIT is overvaluing its assets. Blackstone's success has already created at least three billionaires, chief among them its CEO, Steve Schwarzman, who is worth almost $40 billion. The ability to enrich yourself seems to be a key part of what inspires others to follow your investment advice.
CEO Stephen Schwarzman insists the worst is behind Blackstone, even as analysts remain worried about BREIT's prospects in a volatile market.
Shannon Stapleton/Reuters
But there are plenty of warning signs that things could get worse. It's unlikely that the market will pick up fast enough to offset BREIT's woes. "Commercial real estate is a slow burn," Brian Moynihan, the CEO of Bank of America, recently observed. In its financial statements, Blackstone says it continues to count on "high single-digit growth" in its two biggest sectors, rental housing and industrial properties. But BREIT's overall growth was just 6% last year, and it has been decelerating quarter over quarter.If the market continues to fall, it will be harder for BREIT to claim it's the shining exception.
To make matters worse, the way BREIT is structured could prove to be a ticking time bomb. Like other private vehicles, BREIT pays hefty commissions to financial advisors who steer their clients to the fund. All told, Blackstone has paid Wall Street banks and brokers more than $700 million in brokerage fees. But for brokers who put their clients in BREIT early on, those commissions could soon hit a mandated cap of 8.75% — meaning they'll no longer be incentivized to sell the fund. If they start advising their clients to exit BREIT, it could spur an even bigger rush for the doors.
The future of BREIT could also send shock waves through Blackstone's bottom line. In 2022 alone, SLCG calculated, fees from BREIT generated 13.3% of Blackstone's total management fees and 12.6% of its performance revenue. If BREIT and its sister fund, BPP, are forced to slash their NAVs by 50%, the ensuing reduction in fees would wipe out over 15% of Blackstone's fee-related earnings — earnings that Wall Street, in contrast, is expecting will grow by 15%. According to Blackstone's financial statements, it's already anticipating it will have to pay the University of California $564 million in BREIT stock — an expense it doesn't count in the numbers it highlights to Wall Street. If BREIT craters, it will also be difficult for Blackstone to live up to Wall Street's expectations for its long-term earnings growth, which depend in part on its successful expansion into the retail market.
There are bigger issues at stake than Blackstone's bottom line. It's worth remembering, as Chilton notes, that private funds like BREIT were among "the biggest losers" during the global financial crisis of 2008. But that lesson seems lost on today's investors, who have once again flocked to private real-estate funds in a time of extreme market volatility. In the two years after the pandemic hit, private funds like BREIT raised $67 billion — far more than they drummed up in the two years leading up to the Great Recession. "While the tombstones may have different names on them," Chilton observes, "the reasons for the demise of private equity real estate players are going to rhyme, and possibly mirror those from the global financial crisis."
That's why the story of BREIT involves more than profits and losses. It's only recently that private-equity firms like Blackstone have started offering products to ordinary investors. "BREIT was a test case for the whole industry," says Koppikar, of Orso Partners. Perhaps, given the questions swirling around BREIT, it's time to rethink whether the world's wealthiest funds should be trusted to take billions of dollars in fees from ordinary investors without more oversight. As it stands, it's impossible to know what BREIT's assets are actually worth — and therein lies the problem. In the absence of a market price, independent accounting and tighter government regulation are needed to ensure that investors have the accurate, verifiable numbers they need to make informed decisions. With private funds like BREIT, too much maneuvering takes place in the dark. And if history is any lesson, the dark is a very bad place to be doing business.
Bethany McLean is a special correspondent at Business Insider.
The kingdom has announced grand plans to boost its tourism industry to 150 million visitors a year by 2030, aiming to build new resorts and cities that will act as Dubai-style travel hubs in the region.
But many of these planned tourist destinations are located on the Red Sea coast, where tensions have been escalating since the October 7 Hamas attacks on Israel and the subsequent conflict in Gaza and beyond.
Iran-backed Houthis have launched numerous missiles and armed drone attacks at Israel and the threat of ongoing conflict has disrupted Red Sea shipping routes, with companies opting to avoid the area.
The conflict in the region has left Saudi officials walking a political tightrope.
Earlier steps toward normalizing relations with Israel have been derailed by a resurgence of local support for the Palestinian cause, while the threat of prolonged conflict risks hobbling officials lofty goals for Neom.
A de-escalating force
Before the October Hamas attacks, Saudi Arabia already appeared to be seeking de-escalation and normalization with its foreign policy in the region.
In March 2023, Iran and Saudi Arabia brokered a deal to re-establish diplomatic relations. With some help from China, the two nations agreed to reopen their embassies in their respective capitals.
Progress on the deal appeared to stall after the Israeli offensive in Gaza sparked anger across the region, leaving Saudi officials caught between a wave of local support for the Palestinian cause and US pressure to normalize ties with Israel.
While Saudi Arabia has called for an end to the war in Gaza and accused Israel of committing war crimes, officials have continued to express interest in normalizing relations with the Jewish homeland as long as any deal includes the creation of a Palestinian state.
The US and Saudi Arabia are in the final steps of a new agreement on security guarantees and civilian nuclear assistance, Reuters reported last week. Normalization of an Israeli-Saudi relations is still far from being agreed.
International optics
The conflict in the region poses a problem for Saudi's hopes of attracting millions of new foreign visitors.
Kristian Coates Ulrichsen, a fellow for the Middle East at Rice University's Baker Institute for Public Policy, told Business Insider: "The Saudis are so concerned about any potential escalation because they realize they have this largely untapped Red Sea coastline, which they are now developing and see a lot of potential in."
Many of Neom's projects aimed at capturing the luxury tourism market are located along the Red Sea coast. Set to open next year, Neom's luxury island resort of Sindalah is advertised as an "exclusive gateway to the stunning Red Sea."
A rendering of Sindalah in the Red Sea, an island resort that's part of the Neom project.
NEOM
Saudi officials need to show that the locations are safe from nearby conflict zones to be able to attract high-spending visitors.
"The optics of stray missiles and drones slamming into Saudi cities when they're trying to attract the sort of high-end luxury markets would be disastrous," Ulrichsen said.
The 2022 Formula 1 Grand Prix in Jeddah, which took place against a backdrop of thick black smoke after Houthi missiles hit a fuel depot five miles away from the racetrack, is unlikely to be far from officials' minds.
Conflict in the region may also cause issues when it comes to the construction of ambitious projects like Neom.
"The remote location of the project, combined with renewed tensions in the Red Sea, also pose specific issues around construction and delivery of equipment and materials," Robert Mogielnicki, a senior resident scholar at the Arab Gulf States Institute, told BI.
Officials will also need to convince firms and residents to buy into Neom and attract tourists to visit. Mogielnicki said thesedemand-related variables mean the Saudi government and planners have less direct control over Neom's success.
Saudi officials are already fighting to combat claims that Neom is facing delays and setbacks.
Last month, Bloomberg reported that the financial realities of the project, which could see cost spiral up to $1.5 trillion, have started to cause alarm within the Saudi government.
Difficulties getting construction materials to the Red Sea coast could further delay some Neom projects, which are essentially already "moving targets," according to Ulrichsen.
Neom did not respond to a request for comment from Business Insider.