Blackstone Real Estate Earnings Down 58% in Q1

The world’s biggest commercial landlord said on Thursday that earnings from its real estate business fell 58 percent in the first quarter compared to the same period a year ago as a market slowdown reduced Blackstone Group’s income from asset sales and disposals by more than half compared to 2022.

The New York-based fund manager said distributable earnings from its real estate business fell to $535 million in the first three months of this year from $1.3 billion a year ago, while its assets under management and management fee income from the sector continued to grow.

Leading the way down for the world’s biggest manager of real estate funds was a drop in net realisations of 98 percent, from $567 million in the first quarter of 2022 to just over $10 million in the period from January through March, as rising interest rates and market uncertainty shut down investor demand for real estate assets.

“The first quarter of 2023 represented a turbulent period for markets with tightening financial conditions and growing concerns of a recession,” Blackstone chairman and chief executive Stephen Schwarzman said in an earnings call with analysts on Thursday. He added that, “To combat inflation, the Fed has increased the Fed funds rate by 475 basis points just in one year – representing the largest increase since 1980.”

Deal Volume Drops

With rising interest rates making real estate acquisitions less appealing, Blackstone disposed of just $4.4 billion in real estate assets during the first quarter of this year, compared to $9.5 billion in exits during the first three months of 2022.

The company’s capital fresh deployments in the real estate sector dropped still more steeply, from $7.5 billion in the first quarter of 2022 to $2.0 billion in the first three months of this year, the company said in its earnings report.

Blackstone also took a hit from depreciation, with its opportunistic real estate funds losing 0.4 percent of their value during the quarter, while core-plus strategies took a 1.6 percent hit. During the first three months of 2022, Blackstone’s opportunistic funds appreciated by 10.3 percent while its core-plus vehicles gained 7.9 percent.

Despite the transaction challenges, the firm’s total real estate assets under management grew by 11 percent during the first three months of this year to $331.8 billion, from $298.2 billion in the same period of 2022.

Major inflows for the company’s investment vehicles included $5.5 billion in capital raised for its BREIT real estate investment trust and $2.1 billion for its fifth real estate debt fund.

Earlier this month Blackstone also said it had reached a $30.4 billion final close on its Blackstone Real Estate Partners X fund with the vehicle now the largest closed-end investment strategy ever, after raising $1.6 billion during the first quarter.

For its Blackstone Asia Real Estate Partners III fund, the firm says it had raised $8.22 billion in commitments, which is up from $8.17 billion at the end of 2022.

More Confidence Needed

In the face of the challenging earnings report, Schwarzman, who was joined in the call by Blackstone president and chief operating officer Jonathan Gray and chief financial officer Michael Chae, pointed to the company’s ability to outpace the market and its ongoing shift into the highest yielding segments of the real estate industry.

Schwarzman pointed out that logistics now constitutes 40 percent of Blackstone’s real estate portfolio – up from zero in 2007, with Gray adding that market rents for warehouse space are generally growing at double-digit rates.

Despite its dearth of deals during the first quarter, the company also painted the current downturn as a time of potential opportunity.

“Our latest fundraising cycle has positioned us very well for the current environment,” Gray said. “We have nearly $200 billion in dry powder to take advantage of dislocations.”

However, Blackstone’s leadership was not yet ready to predict a return to buying and selling in the property market.

“For private equity – real estate private equity – those things take a little bit of time,” Gray said. “There tends to be a need for a little bit more sort of confidence in markets – a little more stability. And I think that will be a little while in the making.”