Blackstone Grows Data Center Business To $150B But Cites Broader Real Estate Headwinds
Blackstone’s data center portfolio has topped $150B and could quickly double — making the sector one of the biggest drivers of returns and offsetting a broader real estate market that remains challenging.
On top of $150B of data center facilities owned or under construction, the investment giant has a prospective development pipeline of $160B, Blackstone Chairman and CEO Stephen Schwarzman said on a conference call with analysts following first-quarter results Thursday.
One of its largest investments in Q1 was the purchase of a 49% stake in U.S. data center developer Rowan Digital Infrastructure at a $3.8B valuation.
The cornerstone of Blackstone’s data center business is developer QTS, which it took private in 2021, and the firm said that has been one of its best-performing assets.
Blackstone said assets that provide the infrastructure to the growth of artificial intelligence, such as power and energy holdings, are also buoying revenue, helping drive profits available to shareholders to $1.8B in Q1, ahead of analyst expectations.
Overall, Blackstone’s real estate business is smaller than a year ago, with $315B of properties at the end of Q1, down from $320B at the same point last year.
Base management fees dropped, but performance-related fees rose, resulting in a 13% increase in total real estate fee-related earnings to $547M.
The value of assets in its opportunity funds fell 0.9% in the quarter, while its core-plus funds rose by 0.8%. The latter own more of the data centers, but value rises in that sector were offset by falls in sectors like life sciences.
“Real estate base management fees declined moderately on a year-over-year basis, in line with the trajectory we previously outlined, due to harvesting activity in our opportunistic funds and headwinds in our institutional core-plus platform,” Vice Chairman and Chief Financial Officer Michael Chae said.
The real estate division made $7B of acquisitions in the first quarter and $7B of sales.
Its Blackstone Real Estate Income Trust fund saw net inflows for the quarter for the first time since 2022, and it raised $3.4B for its real estate debt business.
Blackstone has $50B of dry powder to invest across its real estate funds, but its earnings call had none of the optimistic assertions executives have made in recent quarters that it is a great time to invest in real estate.
Instead, management spent much of the call trying to reframe the narrative about the likelihood of losses and the impact of redemptions from private credit funds.
On the plus side, President and Chief Operating Officer Jon Gray said the company is positive on the prospects for its logistics assets, with leasing having picked up in the sector and supply of new assets at all-time lows.
He said real estate in general will become more appealing when geopolitics settle because investors are getting nervous about putting their money in software companies.
“As investors pivot back to hard assets, as we get some calming after the war and as the performance picks up, particularly around logistics, I think [real estate is] an area where we could start to see an acceleration,” Gray said.
