Blackstone's CRE Business Shrinks, But Gray Says 'Tipping Point' Is Near
Blackstone slowed down its investment in commercial real estate in the second quarter, but company executives projected confidence that the CRE market is poised for a return during the firm's earnings call Thursday.
The investment giant still manages the largest commercial real estate portfolio in the world and increased CRE fundraising, but Blackstone's other business lines continue to outperform, leading to a net income of $1.6B for Q2.
Blackstone's real estate assets under management contracted by 3% year-over-year to $325B in the second quarter, still the largest portfolio on the planet. The firm deployed 37% less capital for CRE assets in the second quarter than last year, while its $5.2B in dispositions was 5% off from a year earlier.
As deal flow slowed down, Blackstone increased second-quarter CRE fundraising by 22% from the prior year, raising $7.2B from investors.
Blackstone’s executives said market conditions continue to improve, and the passage of President Donald Trump’s massive tax and policy package offers some solid ground for corporations to transact on.
“It’s all about a question of when, not if, because the building blocks for this recovery are clearly coming into place,” President Jon Gray said on Blackstone’s earnings call Thursday morning.
The sector’s fundamentals were further bolstered by the likelihood of incoming interest rate cuts and a lack of recent new construction, Gray said.
“We're getting closer and closer to that tipping point where real estate will start to move,” he said. “We haven't quite gotten to that escape velocity yet, but it's feeling better and better given some of these key things. The cost of capital and the decline in new supply are very supportive as you start to look forward.”
Across all business lines, Blackstone reported a 25% year-over-year increase in distributable earnings and a 31% increase in fee-related earnings in Q2. The strong performance pushed its stock up more than 4% in trading Thursday.
Blackstone deployed $33B into new investments in Q2, with $6.2B going into commercial real estate.
Blackstone’s core-plus portfolio was weighed down by its life sciences holdings, which were impacted by new supply coming online and increased caution from occupiers, Chief Financial Officer Michael Chae said. Strong data center performance offset some weakness.
The firm has focused on data centers, logistics and rental housing assets, which now account for roughly 75% of its global equity portfolio and 90% of its real estate credit platform.
CEO Stephen Schwarzman said the executive team remained convinced that the real estate market reached its floor over a year ago, but the recovery would be long and bumpy.
“In real estate specifically, we called the bottom of the cycle 18 months ago. And since then, we've been actively investing across our real estate equity and debt strategies,” Schwarzman said. “We also said it wouldn't be a V-shaped recovery, and that is what's happened.”
Private market valuations have shown gradual improvement, Schwarzman said, and available supply was falling along with the cost of capital, which was pushing some deals to close.
The passage of the One Big Beautiful Bill injects some certainty into the marketplace, and Blackstone expects inflation to remain muted, which will pave the way for the Federal Reserve to cut interest rates.
“As the policy environment settles, we expect transaction activity to benefit, including realizations,” Schwarzman said. “Greater clarity will lead to greater confidence for companies, financial sponsors and market participants.”
CORRECTION, JULY 28, 1:55 P.M. ET: Blackstone had $325B in real estate assets under management at the end of the second quarter.
