Blackstone Group, billed as the world’s largest commercial property owner, has reached $1 trillion in assets under management, the first alternative asset manager in history to make that milestone.

The company announced the achievement along with its earnings for the second quarter, results that dropped nearly 39% as higher interest rates and an uncertain economic outlook curtailed deal activity and dented performance in its real estate segment.

Blackstone’s $1 trillion mark comes after Chairman and Chief Executive Stephen Schwarzman started the firm with a partner in 1985 with just $400,000 of startup capital. The New York-based private equity giant got there in part by generating $30.1 billion in second-quarter investor capital inflows in areas including global direct lending and real estate debt.

“$1 trillion is a mile marker on a much longer journey,” Blackstone President and Chief Operating Officer Jonathan Gray said Thursday on an earnings conference call. “It all starts with investment performance. … Where you invest matters.”

Even long-term investing success has down quarters. Blackstone's second-quarter distributable earnings, a closely watched profit metric that indicates amounts available for dividends to Blackstone shareholders, fell to $1.2 billion from almost $1.99 billion a year earlier. Real estate, traditionally an outperformer, was the worst performing segment, with distributable earnings slumping 64% to $639 million.

The real estate segment, Blackstone’s largest unit when it comes to assets under management, generated $5.5 billion in asset sales last quarter, including that of the sale of JW Marriott San Antonio Hill Country Resort & Spa to Ryman Hospitality Properties for $800 million and a portfolio of U.S. logistics to Prologis for $3.1 billion. In contrast, a year earlier, it had asset sales of $19.8 billion including the sale of The Cosmopolitan of Las Vegas, billed as the segment’s most profitable single asset sale ever, as well as the recapitalization of Mileway, the largest private real estate transaction globally.

Blackstone’s real estate opportunistic fund saw flat fund investment performance, the lowest among various segments, while its core-plus fund appreciated by 1.7%. Those performances trailed those of Blackstone’s other segments. For instance, Blackstone’s corporate private equity posted a 3.5% fund appreciation while there was a 3.3% increase in gross returns for private credit.

While real estate sectors such as office still have challenges, Gray said global logistics, digital infrastructure and energy transition, life sciences, student housing, lending and credit remain among areas where Blackstone sees big investment opportunities.

There’s “massive funding needs for infrastructure projects” in areas such as data centers amid a “well-publicized arms race” in artificial intelligence, he said. As banks and other traditional financing providers are more cautious and limited in lending, he sees the “structural shift underway” presenting an “attractive opportunity” for Blackstone’s global direct lending business. The firm is also partnering with banks and lenders on offering financing for home improvement, autos, and environmentally friendly initiatives, he said.

“Banks recognize there’s a natural partnership between their loan origination and some of the capital we manage for insurance companies,” Gray said, adding it’s in a number of talks with banks.

Schwarzman on the call said the partnership with banks “isn’t just a U.S. phenomenon,” adding it also is taking place in Europe.

“Everybody is feeling the pinch from the regulatory pressure,” Schwarzman said. Banks “like to keep customers. They just don’t have the balance sheet to hold all of them. That’s a particularly interesting area for us.”

On the commercial real estate front, Gray said there continues to be “significant bifurcation” in the space, led by office facing “real fundamental headwinds.” He predicted “more foreclosures and markdown” in the overall space. Still, he said Blackstone’s investment in U.S. office sector represents less than 2% of its portfolio.

Leveraged loan default rates in Blackstone’s portfolio are still less than 1%, he said, adding industrywide default rates remain below the long-term average.

“Everybody has been surprised given how high the Fed has taken rates and there’s more distress,” Gray said, adding even as the economy slows, the default rate won’t be like that during the 2008 and 2009 financial crisis when borrowers had a much higher level of leverage. This time around, companies have posted strong profit growth, which helps to keep defaults relatively low, he said.

“We expect things will get tougher but not as bad as the last" downturn, he said.

As high borrowing costs and an uncertain economic outlook have seized up market activity and curbed deal flows, Gray said there are improving indicators. Blackstone is “seeing strong signs of inflation slowing around the world,” he said. Meanwhile, Blackstone Real Estate Income Trust’s monthly redemption request in June slowed to the smallest amount this year in a showing of more optimistic market sentiment.

By market, he said Asia, led by India, offers “significant opportunity.” The South Asia country is Blackstone’s third largest market after the United States and United Kingdom, he said. There’s a “substantial runway for our business in Asia,” he said.