Private equity giant Blackstone, the world’s largest commercial property owner, sees a real estate recovery picking up after elevated interest rates, pandemic-sparked office market struggles and uncertainty over U.S. tariffs slowed its once best-performing segment.
In a sign of improved investor sentiment toward real estate, the new capital Blackstone took in from outside investors totaled $7.2 billion, up $1 billion from the $6.2 billion it received in the first quarter. Inflows in the second quarter included $2.4 billion into real estate debt strategies, $1.1 billion into the flagship Blackstone Real Estate Income Trust, and $1 billion for Blackstone Americas Logistics.
For real estate, “the good news is it’s all about a question of when and not if” it will recover, Jon Gray, Blackstone’s president and operating chief, said Thursday on a second-quarter earnings conference call. “The building blocks for this recovery are clearly coming into place,” adding that in the broad economy including real estate the “dealmaking pause is behind us."
When it comes to the drivers behind real estate, for one, reduced warehouse and apartment construction will lead to “a much more favorable supply and demand” picture, he said on the call, adding there are “early green shoots of transaction activity” for the property types in the form of smaller deals.
Meanwhile, the Federal Reserve’s expected rate cuts will bode well for the commercial real estate industry that’s been pressured by higher borrowing costs, he said.
“We are getting closer to that tipping point where real estate will start to move,” he said. “The cost of capital and decline of new supply are very supportive as you start to move forward.”
In a sign of an improved outlook, Blackstone’s opportunistic real estate funds that take on riskier investments inched up with a return of 0.1% in the second quarter, after a 3.6% drop over the past 12 months. The more stable income-producing funds dipped 0.4%, following a 0.5% drop the past 12 months.
Real estate's performances lagged the rest of Blackstone's segments including Private Equity and Private Credit, both of which posted double-digit gains in the past year.
Record assets under management
Blackstone’s real estate assets under management rose to $325 billion as the firmwide total jumped 13% from a year earlier to a record high of $1.21 trillion, driven by inflows in private equity as well as private credit and insurance segments. Blackstone Chief Executive Stephen Schwarzman said the companywide record was also “a new industry record.”
Blackstone shares jumped more than 4% Thursday afternoon as its results beat Wall Street expectations. Its distributable earnings, a key metric that measures profit available to be delivered to investors, rose to about $1.6 billion from $1.25 billion a year earlier.
During the quarter, Blackstone invested a total of $33.1 billion, adding to $145.1 billion the past 12 months, in what Schwarzman described as one of the most active in company history and “a favorable time for deployment.”
In real estate, it spent $6.2 billion in new investments, about $1 billion more than in the first quarter, including acquisitions of commercial real estate loan portfolios and Texas industrial properties.
Blackstone favors investments in areas such as digital and energy infrastructure, digital commerce, digital commerce, private credit and life sciences, Schwarzman said.
Those areas have also been among the largest drivers for the appreciation of its funds, especially with “the enormous need for debt and equity capital to build the infrastructure powering the artificial intelligence revolution,” he said, adding that has also “created extremely positive dynamics for our business in real estate.”
‘Supportive tailwinds’
With the stock market hitting record high levels and mergers and acquisitions activity “accelerating” and the initial public offering market “reopening,” he said Blackstone is also preparing to take a number of its portfolio companies public in the coming quarters.
Blackstone has its largest pipeline of potential initial public offerings in the works since 2021, according to Gray, after the investment giant-controlled European gaming company Cirsa this month went public.
Schwarzman said the company’s proprietary data found inflation is below the Federal Reserve’s target rate.
“That should give the Fed room to [cut] rates over time, which is positive for asset value,” he said. We see “multiple supportive tailwinds.”
When it comes to the company’s bid to sell or take public its investments in so-called realizations, Blackstone Chief Financial Officer Michael Chae said it sees an “acceleration of net realization” as the market is “entering a more constructive environment.”
In real estate, for instance, Blackstone sold $5.2 billion in assets last quarter, up from $4.3 billion in the first quarter. It recently also put up for sale a popular shopping mall in New York’s Flushing neighborhood for what could become one of the largest retail transactions in the United States since the pandemic.