17% Returns Are Keeping Blackstone Heavy On Real Estate Debt

Blackstone’s real estate debt business had a standout 2025, and the investment giant is leaning into lending again in 2026.

A combination of an improving market, just the right level of competition for deals and an evolving relationship pushed Blackstone’s real estate debt fund series to a 17% return in 2025. That is one of the best performances in Blackstone's entire portfolio. 

It was a bit of a Goldilocks market for Blackstone Real Estate Debt Strategies.

“For lenders like BREDS, we were able to come in at attractive spreads with strong structures and lower loan-to-values,” said David Gorleku, Blackstone’s head of Europe for real estate debt strategies. “From a return standpoint, we generally saw that higher interest rates provided elevated income, while these real estate fundamentals improved.”

Blackstone is sticking to favoured sectors such as logistics, multifamily and data centres given the high levels of geopolitical uncertainty the world is experiencing, Gorleku said in an interview with Bisnow the day before the commencement of U.S. and Israeli airstrikes in Iran.

But Gorleku said the market remains favourable for making strong returns on real estate debt.

BREDS has $77B (£57B) of assets under management and about 170 staff globally. The main cornerstone of the business is its series of closed-ended global debt funds. Last March, it raised $8B for the fifth of these funds, which have a combined net internal rate of return on realised investments of 11% over their lifetime, according to the firm’s quarterly results.

The listed Blackstone Mortgage Trust has a $20B loan portfolio and a market capitalisation of $3.2B. 

Blackstone issues both fixed- and floating-rate loans, which means the higher interest rates of the past few years have been beneficial for its returns. But as rates drop, more transactions occur and asset prices increase, which is positive for both lenders and the market more generally. 

"A competitive real estate credit market can help unlock the acquisition market, because it'll help make transactions happen by narrowing the bid ask spread in the transaction markets,” Gorleku said.

The market is in a sweet spot for BREDS, he said. Increasing liquidity and competition among lenders are improving the market, but there is not so much competition that margins are being driven down for the larger, more complex deals the company likes to undertake. Low LTV loans at high margins make for good returns. 

Gorleku said Blackstone can keep lending through macroeconomic and geopolitical uncertainty by sticking to the areas it knows well and where it can leverage the data and market insight of the Blackstone equity business. 

“In this environment, it really comes back to the sector selection point, investing in the sectors that we think have the strongest long-term trends and structural tailwinds to deal with a rapidly evolving environment,” he said.

For BREDS, that means logistics and industrial, multifamily and other residential, data centres, and opportunistic purchases of bank portfolios or bank partnerships.

“Those were areas where we were most active in 2025, and I would expect to continue to be active in all of those as we go through 2026,” Gorleku said.

In Europe, one example of a deal is a £311M whole loan Blackstone extended to fellow private equity firm Sixth Street to finance its purchase of Clipstone REIT last year. The portfolio comprises 36 stabilised multilet industrial properties across infill, last-mile locations in the UK.

The firm is not shy of development lending since new supply has been at historically low levels, Gorleku said. In Europe, it has its eye on funding multifamily and residential construction. 

It is also seeking portfolio deals and partnerships with banks, which marks an evolution in the global real estate lending world. 

Big investors have always bought loan portfolios from banks — businesses like Starwood Capital cut their teeth buying distressed portfolios from banks in the savings and loan crisis of the 1980s and 1990s. 

In 2024, for instance, Blackstone bought a €1B ($1.2B, £870M) portfolio of U.S. and UK loans from German lender PBB, which is exiting the U.S. 

But Blackstone is also looking to undertake more Significant Risk Transfer transactions with banks, a relatively new type of deal. It involves a bank selling part of the risk on a portfolio of loans to an investor, while the loans themselves stay on the bank’s balance sheet. The sale is normally of the most junior part of the loans and therefore the part that will be wiped out first in the event of any drop in value on the underlying asset. 

SRTs mean banks don’t have to hold as much equity on their balance sheets to insure against future losses, so they can use that money elsewhere to make a profit. Meanwhile, investors get access to what they see as a good portfolio of loans and the returns that come with investing in these debt tranches. 

Blackstone has undertaken such deals on real estate portfolios but hasn’t made specific transactions public. 

Gorleku said these types of transactions and loan portfolio sales benefit both parties involved, and they increase liquidity in the broader market. 

“A well-functioning bank market is important to the real estate sector more broadly,” he said. “As you think about these types of bespoke trades, finding ways to collaborate with banks increases the velocity and the liquidity in the broader sector. And that, from our standpoint, is a good thing.

"We want the debt markets to be active, because as that happens, it increases the pool of opportunity across the board."