Blackstone still sees 'substantial pressure' in office sector as real-estate market recovers

By Steve Gelsi

Blackstone boosted its real-estate investments by $6 billion in the latest quarter relative to a year before

Blackstone Inc. more than doubled its real-estate investment activity to $10 billion in the second quarter, as the private-equity firm continues to see a bottoming out in the broader commercial real-estate sector.

While some pockets of weakness may persist in the distressed office-space sector, the Green Street Commercial Property Price Index has turned in six months in a row of flat or increasing values, Blackstone (BX) said Thursday on its earnings call.

Blackstone President and Chief Operating Officer Jonathan Gray said the firm's own deals have reflected this traction in the marketplace.

"We're now seeing more bidders show up to sales processes for single assets, driving price improvement," Gray told Wall Street analysts on the call.

Blackstone boosted its investment activity in real estate to $10 billion in the second quarter from $4 billion in the year-ago period, as it focuses on hotter sectors such as logistics and data centers.

Improvements in debt markets have lowered the cost of capital "significantly" while debt has become more available, Gray noted.

However, some dangers persist.

"The office sector remains under substantial pressure, with more troubled assets likely to emerge," Gray said.

While Blackstone's overall real-estate portfolio has relatively light exposure to the downturn in office property values, its publicly traded real-estate investment trust, Blackstone Mortgage Trust Inc. (BXMT), has higher exposure and is facing some challenges, according to Gray.

After Gray called a bottom in commercial real-estate prices earlier this year, Blackstone invested $15 billion in the sector in the first six months of 2024 - about 2.5 times the firm's deployment in the first half of 2023.

Read: Real-estate prices have bottomed out and it's now time to buy, Blackstone president says

Among its more recent deals, Blackstone took Apartment Income REIT Corp. private in June in a deal valued at $10 billion. That followed its $3.5 billion move to take Canadian multifamily property developer Tricon Residential Inc. private, which was completed in May.

Blackstone's stock is up 6.5% in 2024, compared to a 15.7% increase by the S&P 500 SPX. Blackstone Mortgage Trust shares has fallen 8% so far this year.

-Steve Gelsi

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07-19-24 1618ET

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