The Blackstone Group saw its earnings from real estate – its biggest business in terms of both assets under management and revenues – drop during the fourth quarter and fiscal-year 2014. At the same time, however, the world’s largest private equity real estate firm also saw one of its best-ever quarterly results in the asset class.
Blackstone posted economic income of $577.36 million in real estate during the fourth quarter, down 38 percent from $932.1 million during the same period in 2013. Its economic income for full-year 2014, meanwhile, was $1.88 billion, a nine percent decline from $2.07 billion from 2013.
The unusual decline was partly the result of Blackstone coming off of an extraordinary year in 2013. “We’re in a business where sequential quarters ebb and flow,” said Blackstone president Tony James during a call with reporters yesterday. “That’s just the timing of events.”
The events in question were the initial public offerings of Hilton Worldwide and Brixmor, Blackstone’s shopping center business, in 2013, which led to massive valuation gains during the fourth quarter of that year. That three-month period was the firm’s best-ever quarter in real estate, with economic income ballooning by a whopping 279 percent from the fourth quarter of 2012, and 107 percent for full-year 2013 from 2012.
Although earnings sank year-over-year, the fourth quarter of 2014 was actually Blackstone’s second-best ever quarter in real estate, James noted. Still, the negative change in the asset class contributed to Blackstone’s overall decline in economic net income, slipping six percent from $1.54 billion during the fourth quarter of 2013 to $1.45 billion during the fourth quarter of 2014.
Earnings aside, James pointed out that the valuations for Blackstone’s property portfolio have continued to increase. “In general, virtually every asset in our real estate portfolio is appreciating nicely,” he said. “I think the portfolio is in fantastic shape, and I think the distributions will look even better than last year.”
In fact, Blackstone reported record realizations of nearly $20 billion in real estate for 2014, accounting for almost half of the firm’s $45 billion in total realizations for that year. “BREP in particular is returning so much money to its investors,” said Blackstone chairman Steve Schwarzman during an investor call yesterday, speaking on the firm’s real estate fund series, Blackstone Real Estate Partners. “Its individual LPs are going to end up well underallocated to Blackstone.”