Inside Blackstone’s plan to deploy $65bn in dry powder

For the brand-new global co-leader of Blackstone’s real estate business, 2024 is the year to play “offense” – and he is armed with the capital to make it happen.

“What we see ahead is an unparalleled opportunity to deploy more than $65 billion of dry powder into a dislocated environment,” said Nadeem Meghji, who was named Blackstone’s new global co-head of real estate earlier this month, putting him in charge of the firm’s $600 billion global real estate portfolio. “At times like this, we believe Blackstone Real Estate really does its best work by taking a long-term view and not getting distracted by short-term noise and volatility.”

Meghji was promoted to the global co-head role after former co-head Ken Caplan was elevated to the newly created role of global co-chief investment officer alongside former head of European private equity Lionel Assant. The firmwide co-CIO roles are a first for Blackstone, which as of last year had $1 trillion assets under management, $330 billion of which is real estate.

Meghji, who will work alongside Kathleen McCarthy, told PERE in an interview Blackstone is primed for buying activity this year, thanks to a reprieve in rates and narrowing of bid-ask spreads. “In moments like this, where there’s greater volatility and dislocation in the market, we take a long-term view and invest with conviction when others may be nervous.”

In addition to overseeing the real estate team’s investments in his new global role, Meghji will also stay on as the Americas real estate head, with other leaders in the regional business taking on more responsibilities. McCarthy, who was promoted to global co-head role with Caplan in 2018, will focus on the business’s growth, investor experience and external stakeholder engagement.

Meghji described Blackstone’s real estate business is in the “best shape” it has ever been – testament to both McCarthy and Caplan’s leadership. In 2018, when Jon Gray was promoted to president, the real estate assets under management were around $115 billion.

A significant portion of Blackstone’s $65 billion in dry powder is expected to come from mega-funds it either closed on recently or is in the process of raising. The firm raised its biggest real estate fund ever, Blackstone Real Estate Partners X, which closed on $30 billion in equity in April. The firm is also currently in market with Blackstone Real Estate Partners Europe VII, and Blackstone Real Estate Partners Asia III, which have amassed more than €4 billion and $8 billion, respectively, to date, according to PERE data.

The company has been public about its intentions to keep deploying capital, with chief executive Steve Schwarzman saying in Meghji’s and Caplan’s promotion announcement that the firm is readying for an “active” investment period. The company was behind several mammoth real estate acquisitions last year; it bought a stake in the commercial real estate loan portfolio of the now-shuttered Signature Bank – $1.8 billion of which it is now looking to sell – and formed a joint venture with Digital Realty to develop $7 billion in data centers in Frankfurt, Paris and northern Virginia. Last week, Blackstone said it planned to take Canadian real estate firm Tricon Residential private, acquiring all outstanding shares of the rental housing provider for $11.25 per share in a $3.5 billion deal.

Europe is already earmarked for its real estate opportunities, with investors able to buy quality assets at a discount. The sentiment in Europe is overly negative, Meghji said, keeping competitors at bay and creating optimal conditions to invest. And while transactions have been sluggish in the US, plummeting 54 percent in the third quarter from a year earlier per CBRE, there is now growing expectation of movement in the market in 2024 – particularly if the Federal Reserve makes good on its plan to cut rates. Some firms are already pivoting from selling to buying, and Meghji said the US is still going to be a target area, even if Europe is a more active area of investment at the moment.

“Rates have come in on the back of lower inflation, the bid-ask spread is beginning to narrow both in the private and the public markets and the financing markets are also beginning to heal,” he said. “CMBS activity has really picked up and spreads are beginning to tighten. I think that creates the conditions for us to be very active from a deployment perspective in the US in 2024.”

From an asset perspective, global logistics remains Blackstone’s single biggest exposure, making up more than 40 percent of its global real estate footprint. In the last 12 months, the firm has committed $15 billion of new ground-up development in US data centers, an a sector the company considers in the “early innings” around the globe. The growth in the cloud, and more recently artificial intelligence, mean there are “extraordinary tailwinds” in data centers. Meanwhile, strong global travel and tourism means hospitality will be another focus area for Blackstone, as will warehouses amid continued growth in e-commerce.

“Our whole business is about identifying themes and applying them globally,” Meghji said. “For example, if something works in the US, and we have conviction around it as we did in the early 2010s with warehouses, we quickly ask ourselves: ‘Is there a way to capitalize on the very same trend in Europe and in Asia?’”