FX volatility weighs on Blackstone’s real estate business

Asian currency fluctuations in particular were a drag on the firm’s global opportunistic fund series in Q3.

Currency volatility became a headwind for Blackstone during the third quarter, distorting returns for the real estate business.

Appreciation in Blackstone’s global opportunistic fund series, Blackstone Real Estate Partners, came out to 3 percent during the three-month period, but would have been 4 percent were it not for currency issues, Blackstone chief financial officer Michael Chae said during the firm’s third-quarter earnings call with investors Thursday.

The currency effect on real estate was less about the euro and the pound and more about Asian currency fluctuations, Chae said. He noted that the euro remained fairly stable during the quarter, and that the firm has a euro-denominated fund investing in European assets that acts as a natural currency hedge.

“The point is, in a number of different ways, at the firm level, at the fund level and at the deal level, we deal with currency exposure,” he said.

Meanwhile, fundraising for BREP IX continues, with the majority of capital commitments expected to come in during the fourth quarter, according to president and chief operating officer Jon Gray. Four flagship funds – corporate private equity, PE secondaries, and global and European opportunistic real estate – have either entered the market or are preparing to launch. The firm plans for fundraising on all four funds to close in 2019 with more capital than predecessor funds in the series, he said.

Blackstone deployed $4.1 billion during the quarter for real estate acquisitions, including the privatization of Spanish REIT Hispania through BREP VIII and the acquisition of student housing portfolio EDR through its non-traded real estate investment trust, BREIT. The firm also closed on the $7.9 billion purchase agreement of US industrial REIT Gramercy Property Trust. During the quarter, more than 50 percent of the capital deployed went to assets outside the US.

The firm also saw a similar level of realizations during the third quarter, reporting $4 billion in realizations, driven by BREP opportunistic funds and co-investments, which together accounted for $3.3 billion in realizations. The majority of assets sold were US and European office buildings.

Blackstone’s real estate assets under management increased by 8 percent to $119 billion during the period. Of that amount, $33.4 billion came from core-plus real estate assets, up 86 percent year-on-year.

Total AUM across all asset classes rose 18 percent to $456.7 billion from the $387.4 billion reported in Q3 2017. Economic net income showed an 11 percent increase year-on-year to $911 million from $822 million.