Private equity giant Blackstone said it had one of its best quarters in 2 1/2 years, but real estate was not among its better performers.
The New York-based firm's fourth-quarter results were tied strongly to its infrastructure investing, which includes data centers. However, pure real estate investments were challenged by volatility in Treasury yields and interest rates. Blackstone funds that own properties produced negative results in the quarter.
Still, Jon Gray, Blackstone's chief operating officer, is committed to real estate as conditions appear ripe for expanded activity. That strategy may include a return to some office investing.
Blackstone is said to be in talks to buy 1345 Avenue of the Americas, a 50-story New York City skyscraper spanning 2 million square feet owned by Fisher Brothers, Bloomberg reported Thursday. Blackstone and Fisher Brothers declined to comment to CoStar News.
Law firm Paul, Weiss, Rifkind, Wharton & Garrison signed New York's largest office deal of 2023 when it moved its headquarters to about 765,000 square feet across 18 floors at 1345 Avenue of the Americas as part of a 20-year deal, CoStar data shows. Fisher Brothers owns the property in partnership with JPMorgan Asset Management, which didn't respond to a request for comment.
If Blackstone bought even a stake in the property, it would line up with a trend that shows office investing has rebounded in New York. The market saw a pickup in the fourth quarter of property recapitalizations in which new partners are brought in to purchase a joint interest. CoStar data shows $538 million of such New York office deals last quarter. That's up from just $35 million in the previous two years combined.
Ready for recovery
A lot of interest rate volatility has been absorbed by the market, according to Gray, setting up a more stable environment going forward. That situation puts Blackstone in an advantageous position: The firm is sitting on billions to invest in real estate.
Blackstone’s largest real estate fund, Blackstone Real Estate Investment Trust, appears to be back on track. The REIT raised $905 million last year, up from $813 million a year earlier, Blackstone said Thursday. In addition, the REIT was able to retain more of that capital as Blackstone said investors are sticking with the fund. Share buybacks in the REIT have fallen 97% from a recent peak that occurred when fears over high interest rates slowed down the market.
“The path of travel is clear, the slope may be a little different,” Gray said on Blackstone’s fourth-quarter earnings conference call. “The reason we're leaning in is because we see that we're firmly on this recovery path for real estate.”
Several factors have emerged, Gray noted:
- A healthy U.S. economy is leading to demand for logistics properties, apartments and hotels.
- New supply of industrial and multifamily properties has declined since 2022, setting up existing properties for better leasing and rent growth.
- The availability of capital needed to regenerate dealmaking has improved.
Blackstone’s commitment to real estate is evident in its real estate spending, which has been increasing, according to the New York firm.
Blackstone deployed $25.3 billion into real estate investments in 2024, including the deal to take Retail Opportunity Investments private and the Tokyo Garden Terrace Kioicho acquisition in Japan. The amount deployed in 2024 was nearly $9 billion more than the $15 billion the year prior.
Blackstone’s real estate assets under management totaled $315.4 billion at the end of the fourth quarter, down from $336.9 billion at the end of 2023. The firm received $27.9 billion to flow into real estate funds for the year, down from $53.9 billion a year earlier.
Infrastructure focus
Infrastructure activity led Blackstone to a strong quarterly performance, CEO Stephen Schwarzman said on the call.
“The largest single contributor to the firm's financial results in the fourth quarter was our dedicated infrastructure strategy [Blackstone Infrastructure Partners], which generated $1.2 billion in fee revenues,” Schwarzman said. “BIP has delivered remarkable investment performance since inception only six years ago, including 17% net returns annually for the commingled strategy. This performance has fueled exceptional growth, with assets under management today of $55 billion up 34% just in the past year alone.”
Blackstone’s infrastructure funds invest in areas such as energy transition, transportation, digital initiatives, and water and waste. The funds also co-invest with Blackstone’s real estate funds in data centers, a sector of real estate that's seen soaring demand worldwide.
Blackstone has grown its investment in data centers from the third quarter, with leased properties now totaling over $80 billion. In the fall, Blackstone said its wholly owned data center owner, QTS Realty Trust, did more leasing last year than the preceding three years combined.
Blackstone’s net income rose to $1.3 billion for the fourth quarter from the year-earlier $704 million, while jumping to $5.4 billion for the year from $2.8 billion for 2023.