Blackstone’s Earning Report Highlights Opportunity in the Property Market

By Franco Faraudo

Blackstone is one of the largest property owners in the world. Started with only $400,000 of startup capital in 1985, Blackstone had at one point over a trillion under management (it has since gone back down to under $900 million), 80 percent of which is in real estate. Blackstone has had some negative press recently, having to hand back the keys of a few troubled office properties, but as we reported back in March, much of it was overblown since office only accounted for around two percent of its property portfolio.

This week, Blackstone had its third quarter earnings call and, as always, it showed how the company thinks about the future of the market. The first thing that the CEO Steve Schwarzman addressed was his predictions for interest rates: “We’ve been saying consistently that we believe the Fed will keep rates higher for longer, and we didn’t share the previous consensus view that they would cut rates by the end of this year.”

This pessimism was mixed with honesty about investor sentiment. “Higher interest rates, along with the confluence of other factors, including economic uncertainty, geopolitical turbulence, high fiscal deficits, political dysfunction, and labor unrest, have adversely impacted investor sentiment,” Schwarzman said. It was “against this backdrop” that he announced that investor distributions would remain steady at $1.2 billion this quarter. One of the reasons for these distributions to be a bit less than expected was that “the environment today is less favorable for realizations, so we’ve chosen to sell less.”

Schwarzman outlined why he thinks that the firm’s “underlying earnings power continues to build.” Most of it had to do with the “when you’re sitting on “$201 billion of dry powder.” He thinks this will give them the ability to invest in distressed assets or, as he put it: “there can be situations where people need to raise capital in a hurry, need to sell something quickly. And again, that’s advantageous for our model.”

Right now, most of Blackstone’s real estate is either industrial, student housing, or data centers, which they still see good fundamentals for. But it seemed like they saw the biggest upside potential in alternative assets like credit, insurance, infrastructure, and life sciences. Blackstone will continue to be a buyer in the property industry, but they are smart enough to know when their money could get a better return elsewhere, so it might be a while until we see them going on a spending spree.

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