The Blackstone Group’s profit in real estate took a hit from volatile stock markets in the fourth quarter, according to the New York-based asset manager’s quarterly results announced Thursday. Despite market churn, Blackstone executives are pointing to rapid growth in the core plus business and investment pace acceleration as indicators of underlying strength in the firm’s real estate business.
Real estate, like most of the firm’s asset classes, was negatively impacted by public companies’ stock prices. Economic net income (ENI) for real estate dropped 72 percent in the fourth quarter to $162 million, compared with the same period in 2014, and was down 50 percent to $948 million for the full year 2015, compared with full year 2014. Overall, the firm had a 70 percent decline in ENI, down to $436 million, in the fourth quarter compared with the same period last year.
But Tony James, Blackstone’s president, said on a media call Thursday that ENI is little cause for concern. He said the operating performance of both its private assets and public companies within real estate continue to do well despite markdowns in the stock market, which, within the asset class, primarily hit lodging companies.
James also pointed out areas of growth for the company, highlighting real estate opportunities in southwestern Europe.
“Europe will be stable,” he said on the media call. “We’re seeing a lot of strength in Spain.”
Blackstone, the self-proclaimed biggest global landlord, has no shortage of capital to deploy in Europe and elsewhere. Overall, Blackstone raised $26.5 billion in real estate alone during 2015. The firm ended the quarter with $23.5 billion in dry powder for its real estate business, second to private equity’s $37.4 billion. A strong quarter for fundraising helped build this war chest, with $1.3 billion collected for the initial closing of its third real estate debt fund and $2.4 billion brought in for core-plus real estate funds over the quarter.
“Our real estate core-plus business has grown to $11 billion in size only two years in after its launch and it has incredible runway in front of it,” said Steve Schwarzman, Blackstone’s chief executive officer, on Thursday’s investor call.
Overall, the firm’s eight global real estate funds, known as BREP, had a net internal rate of return of 17 percent as of December 31, according to the fourth quarter results. The latest fund, BREP VIII, closed in October at $15.8 billion.
In addition to fundraising strength, Schwarzman pointed to headline-grabbing real estate purchases in 2015 as evidence of the firm’s dominance. These investments included the deal last April with Wells Fargo to buy GE Capital’s real estate assets for about $23 billion and the $5.4 billion purchase last October with Ivanhoé Cambridge of Manhattan’s Peter Cooper Village-Stuyvesant Town, an 80-acre property that is home to 30,000 New Yorkers.
In 2015, “we leveraged hallmark deals that we are uniquely positioned to do,” Schwarzman said.
During the fourth quarter for real estate, $7.8 billion was deployed and $4 billion was returned to investors.
Blackstone’s total assets under management (AUM) increased 16 percent for the year to a record $336.4 billion, while its real estate AUM reached $93.9 billion, also up 16 percent year over year.