Q2 REVIEW
advertisement out in the newspaper , heralding the firm — an almost classified to raise money . “ We thought the phone would ring off the hook ,” Schwarzman said . It didn ’ t , at least right away .
From that time on , Blackstone began building up its book of business and today encompasses some 70 distinct investment strategies , with more than 230 distinct companies in its portfolio and some 12,000 real estate assets .
One of Blackstone ’ s biggest advantages is it holds vast reams of data that it ’ s able to harvest from all its investments . It ’ s why and how the firm has over time developed its thematic investment platform . “ We have so much data that helps us identify trends before others and where to invest client capital . It ’ s more info than anyone competing with us ,” Schwarzman said .
ACE IN THE HOLE Another Blackstone advantage : Jon Gray , president and COO , who has attained a quasi-mythical status in his time at Blackstone having , for example , spearheaded the leveraged buyout of Hilton , a deal that netted $ 14 billion in profit when Blackstone fully cycled out of it in 2018 .
Gray is seen as the potential heir apparent to Schwarzman as CEO one day . For now , he is the firm ’ s biggest , mostlistened-to-and-in-demand voice ( he
Jon Gray , president and COO , Blackstone recently delivered the commencement speech at Trinity School , in Manhattan , where his daughter graduated ).
He had propitious news to report during Blackstone ’ s Q2 call and offered some guidance on what ’ s to come .
For the quarter , Blackstone pumped out $ 601.3 million in net income compared to a $ 29.4 million loss at the same time a year ago . Total revenue was $ 2.81 billion in the quarter , a 77 % increase over Q2 2022 .
With some $ 200 billion in dry powder , Blackstone should look to further deploy its balance sheet as the year moves forward across the many sectors it invests in , from logistics and student housing to hospitality and data centers . Especially if you subscribe to Gray ’ s thinking that market fundamentals should flip back favorably in the coming months . “ There are strong signs of inflation decreasing ,” Gray said .
Somewhat a surprise is the dearth of distress assets in the market , something Gray attributes both to strong company performances and earnings and less leveraged positions throughout the financial system . “ Everyone is surprised at rate raises by the Fed and not more distress ,” he said , adding that default rates are still below the long-term average of 3 % and that during the Great Financial Crisis , default rates were up to 14 %.
Gray is smart , but he ’ s not a soothsayer — that we know of . “ If the economy does moderate and [ interest ] rates stay elevated , we may see more defaults ,” he said , “ but it ’ s not like the over leverage we saw in 2008 / 2009 .” Consider Blackstone ’ s BCRED , its non-exchange traded business development company , which saw loan-tovalues ( LTVs ) at around 43 % on its book and much of it originated prior to the rate hike . That ’ s in contrast to the the 70-pluspercent LTVs during 2006 and 2007 . “ Things could get tougher , but not as bad as last cycle ,” Gray said .
Around 50 % of Blackstone ’ s real estate holdings are in three sectors : logistics ,
Steve Schwarzman , CEO , Blackstone
student housing and data centers . Only 2 % is concentrated in the battered office segment . “ There continues to be a big bifurcation in commercial real estate ,” Gray said . “ Certain sectors face headwinds .”
One major benefit for owners is the lack of new supply throughout the commercial real estate market , some of which is due to the lack of new projects getting underway due to the current rate environment . “ There is a sharp decline in new supply ,” Gray said , citing logistics ( new starts down 50 %), housing ( down some 20 %) and hotels . Constricted supply also gives owners and operators of assets the confidence to either raise rates or keep them at lofty levels . “ There is significant opportunity coming out of this to invest in places where there are underlying vacancies , in a lower rate environment , with less building [ supply ],” Gray said , adding that Blackstone is right now most active in European logistics .
BREIT , Blackstone ’ s non-listed REIT that invests primarily in stabilized income-generating commercial real estate investments across asset classes , has had a net return of 12 % over the past 6-plus years , three times the public REIT market , Gray said . BREIT redemptions were down nearly 30 % in June , the lowest rate since a January peak .
“ That performance drives people to come back ,” Gray said .
28 hotelsmag . com September 2023