Blackstone shares surged to a record high Thursday after the world’s largest commercial property owner reported a better-than-expected third-quarter result and an improved real estate investment performance.
The private-equity firm invested or committed $54 billion in the quarter, the highest amount in over two years, as it said “the cost of capital peaked” in light of the Federal Reserve’s rate cut in September. The U.S. central bank’s previous rate hikes since 2022 had seized up deals and financing in real estate and led to increased defaults in the office market that has been hit hard by cost-cutting by companies as well as hybrid and remote work.
The Fed’s “easing the cost of the capital will be very positive for Blackstone’s asset values,” Blackstone Chief Executive Stephen Schwarzman said Thursday on a conference call to discuss its third-quarter earnings results. “It will be a catalyst for transaction activity.”
For commercial real estate, he said that will help spur a “new cycle of improving investor sentiment” and increased values.
In anticipation of the market improving, Blackstone has “substantially increased” its pace of investment as it’s planting the “seeds of future value,” he said.
On the call, Jonathan Gray, president and chief operating officer, said though commercial real estate sentiment is improving, it's "still negative."
"People look at the wreckage from the past," he said. "They are waiting to see if it’s safe to go back in."
While the New York private-equity giant’s investment balance is leaning more heavily on buying, the firm said real estate and other sale opportunities will follow.
Artificial intelligence
Among areas of Blackstone’s investment focus is what Schwarzman described as “the revolution underway in artificial intelligence” and the build-out of “digital and energy infrastructure needed to support AI.”
A case in point, Blackstone in September announced the $16 billion purchase of AirTrunk, which he said is the largest data center operator in the Asia-Pacific region.
Schwarzman said Blackstone has $70 billion of data center investments and over $100 billion in prospective pipeline development, including AirTrunk and those facilities under construction. Blackstone in just three years has “scaled” to the largest data center platform in the world, he said, adding that addressing the sector’s power needs will increase additional investment opportunities over time.
Other investment themes Blackstone is paying close attention to include renewable energy transition, private credit and India emerging as “one of the most important major economies,” he said.
In a telling sign of recovery in commercial real estate, Schwarzman said Blackstone Real Estate Income Trust, a closely watched benchmark for the industry, has reported investor stock redemption requests slumped 93% from a peak. He sees the fund “moving to positive net" inflows of capital, marking a return of investors.
Blackstone’s core-plus real estate investments, which includes BREIT and covers more stable, income-generating, high-quality real estate, posted a 0.5% decline in third-quarter performance, an improvement from a 3.8% drop in the past 12 months. Its riskier opportunistic real estate posted a 1.1% increase in investment performance, reversing a drop in the past 12 months.
About 90% of BREIT is concentrated in warehouses, data centers and rental housing, Schwarzman said.
Student housing
Among rental housing, student housing is an important focus.
“There’s a structural undersupply in the United States,” Wesley LePatner, a Blackstone veteran who’s taking over as BREIT CEO on Jan. 1, said at a symposium of women in real estate hosted by New York University’s Schack Institute of Real Estate on Wednesday. “If you pick the right campuses with strong enrollments, it tends to be an all-weather asset class.”
She said BREIT has paid out investor redemption requests 100% for several months.
In another sign of the industrywide demand for data centers, she said QTS, which Blackstone took private in 2021, did more leasing last year than the preceding three years combined.
Sectors like this “10 years ago would have been viewed as a niche sector” in commercial real estate, she said at the NYU event. “They are major groups.”
Gray said Blackstone is also looking for "interesting places to deploy capital." He pointed to "retail around grocer-anchored space" instead of enclosed malls as an opportunity.
Blackstone’s third-quarter net income jumped to about $1.56 billion from $920.7 million a year earlier as distributable earnings, profit available to shareholders and a performance metric, rose to $1.28 billion from $1.21 billion.
Total assets under management jumped 10% to about $1.11 trillion, driven by inflows to its credit and insurance segment. Total assets under management in the segment neared $355 billion, topping both real estate and private-equity segments for the first time and becoming the largest Blackstone segment in terms of that metric.