Blackstone Inc., the world’s largest alternative asset manager, is prepared to seize opportunities as the property market shows signs of improvement, according to President Jon Gray. Speaking to Wall Street analysts on Thursday following the firm’s second-quarter earnings report, Gray highlighted the declining cost of capital and anticipated Federal Reserve rate cuts as key factors that will “set the foundation for a new cycle of increasing values in real estate.”
The firm experienced mixed results in its real estate sector due to high interest rates, which dampened returns and slowed investor inflows. Despite being the largest commercial real estate owner globally, Blackstone reduced its pace of property exits. Profit increases in credit and private equity were insufficient to counterbalance a 3% drop in fee-related earnings, which totaled $1.11 billion.
Nevertheless, distributable earnings—profits available to shareholders—rose by 3% year-over-year to $1.25 billion, or 96 cents per share, slightly below analysts’ expectations of 98 cents per share, according to Bloomberg.
Blackstone faced increased redemption requests in late May, following similar restrictions by rival Starwood Capital Group’s real estate investment trust. Although Blackstone’s $57 billion REIT could have imposed restrictions, it refrained from doing so for two consecutive months. June saw a 50% reduction in redemption requests compared to May. In the first half of the year, Blackstone invested nearly $15 billion in real estate, more than double the amount from the same period last year.
Gray expressed optimism that the real estate market’s worst phase is over, excluding the office sector. He pointed to declining borrowing costs and a robust market for commercial mortgage-backed securities as drivers for new deals. He also stated that uncertainty surrounding the upcoming U.S. elections in November is unlikely to impede deal-making activities.
Following the market’s opening, Blackstone’s shares initially fell but later rose by 2.4% by mid-morning in New York.
Blackstone, a $1.08 trillion financial powerhouse, continues to dominate in buyouts, lending, and hedge fund investments. The firm’s private equity division saw new inflows from its first fund targeting wealthy individuals, with fee-related earnings growing by 1% and distributable earnings increasing by 16%.
The credit arm delivered the most substantial gains, with fee earnings up 29% and distributable earnings surging by 51%, driven by higher inflows and successful investment exits. Blackstone aims to more than double its credit assets to $1 trillion within the next decade.
During the second quarter, Blackstone committed $33.7 billion to new investments, a 73% increase from the previous year, and pledged an additional $19.1 billion to deals. Executives indicated on the analyst call that they expect a “material step-up” in fee-related earnings by year-end as key funds start generating full management fees or are set to take their share of profits.
