Private equity firm Blackstone took a hit from the commercial real estate market during its first quarter earnings for 2023.
Blackstone, led by CEO Stephen Schwarzman, is the largest owner of commercial real estate globally, with a portfolio valued at $577 billion.
However, according to the firm’s earnings for the past three months, released yesterday (April 20), Blackstone posted $534 million in real estate earnings, a 58 percent decrease from 2022. The firm also saw its profits from real estate sales fall by 54 percent to $4.4 billion.
And while its corporate private equity and private credit funds rose by 2.8 percent and 3.4 percent respectively, its opportunistic and core real estate funds fell by 0.4 percent and 1.6 percent.
Concern surrounding the $20 trillion commercial real estate industry has surged due to higher interest rates, the possibility of a recession and recent banking crises. Small- to medium-sized banks provide 80 percent of commercial real estate lending, according to Goldman Sachs economists.
The sector has additionally been threatened by the effect of remote work and the Covid-19 pandemic on office and retail buildings.
“Today, investor sentiment toward real estate has been quite negative again,” said Schwarzman during Blackstone’s earnings call. “Vacancies in offices have reached all-time-high levels, and owner of many of these assets may be unable to extend financing in a more constrained environment.”
However, Blackstone has “minimal exposure to traditional U.S. offices,” according to Schwarzman, as the firm has reduced its office holdings in its real estate portfolio from more than 60 percent in 2007 to less than 2 percent in 2023.
Schwarzman has an estimated net worth of $29.4 billion, according to Forbes, and in 2020 signed the Giving Pledge, committing to give away the majority of his wealth to philanthropy.
Known for throwing extravagant events and giving charitable contributions to the New York Public Library, he also previously headed Donald Trump’s economic advisory council.
Will Blackstone join the S&P 500?
Blackstone has remained protected from the more unstable areas in commercial real estate, according to Jonathan Gray, Blackstone president and chief operating officer. “So had we positioned heavier obviously in U.S. office buildings, had we done a lot in retail, I think we would be more vulnerable,” said Gray during the earnings call. “But when you look at our portfolio as a whole, we’ve used a very disciplined approach to leverage.”
Blackstone also posted a net income of $211 million compared to $2.5 billion from the year before. “First quarter of 2023 represented a turbulent period for markets, tightening financial conditions and growing concerns of a recession,” said Schwarzman.
The Blackstone CEO and chairman additionally noted that earlier this week, S&P Dow updated the eligibility rules for the S&P 500, a stock market index of the 500 leading publicly traded companies in the U.S. which previously barred companies with multiple share classes.
“This important development follows a consultation period in which they engaged a broad universe of market constituents,” said Schwarzman, adding that Blackstone’s market capitalization of $112 billion makes it the largest of any company not currently included in the S&P 500.
“We are hopeful that this development paves the way for our inclusion, which would be very positive for our shareholders.”
