Blackstone has set out to invest during a period of “dislocation”, as it acts on its conviction that real estate values are bottoming out.
“The recovery will not be a straight line but we are not waiting for the all-clear sign to invest,” said president and chief operating officer Jonathan Gray, in the firm’s latest earnings call.
He added: “We are pretty confident that commercial real estate over time recovers and that foundation is starting to come into place.”
The firm has posted a 2.3% rise in total assets under management in its real estate portfolio to $339.3bn (£273bn) in Q1 this year, accounting for just over a third of the firm’s overall $1tn AUM. Around $63.8bn of dry powder was allocated to real estate, out of its $191.2bn total.
Realisations from its real estate sales grew to $30.3bn in the first quarter, from $10.2bn in Q1 2023, while revenue earned from the real estate arm was up 20% to $902m.
Chairman and chief executive Stephen Schwarzman said: “While changing market conditions take time to translate to financial results, including realisations and performance revenues, we are seeing positive momentum across many key forward indicators at our firm.”
Amid expectations that recovery is on the cards for real estate, Blackstone last week agreed a $10bn take-private of rental housing platform Air Communities.
“Rental housing remains a major investment theme for us given the structural shortage in this space,” said Gray.
He added that the firm is “quite focused” on European real estate, having raised $7.6bn for its flagship vehicle as of quarter end.
Gray cited an 80% decline in new starts in logistics and a 50% drop in the multifamily sector. This impending supply squeeze, combined with reducing costs of capital, has boosted Blackstone’s confidence.
“I would think about this period as a time of seed planting, that you want to be investing into this dislocation because there is a lot of uncertainty,” said Gray, pointing to the potential for forced selling and public companies trading at discounts.
“There will still be plenty of challenging headlines from assets that were financed in a different environment as they work their way through the system,” he added. “It’s almost as if something happened to a ship at sea and then it comes ashore.
“We saw this after the financial crisis where real estate values bottomed in that summer of 2009, but you had negative headlines in real estate for the next three years. We spent a lot of that time… deploying capital into that dislocated period where people were still cautious.”
Another major investment theme for the firm is data centres, where Schwarzman points to the “revolution under way in artificial intelligence”.
Blackstone vehicles own $50bn of data centres globally, including facilities under construction, with an additional $50bn in its future development pipeline.
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