Key Takeaways
- • Blackstone's real estate AUM fell 1.6% in Q3 to $309.0 billion from $314.1 billion at the end of June, and declined 3.6% from $320.5 billion a year earlier, making real estate the only one of the firm's four segments to shrink over either period.
- • Realisations of $7.0 billion in the quarter outpaced the $6.1 billion deployed, while market activity accounted for $3.4 billion of the $5.2 billion AUM decline.
- • Blackstone raised $29.6 billion for property over the trailing 12 months, up 17%, leaving $46.9 billion of real estate capital waiting to be deployed.
- • Real estate management and advisory fees fell 9% year on year to $628.8 million, with fee-related earnings down 9% to $499.2 million, as the termination of Blackstone Real Estate Partners VIII weighed on base fees.
- • BREIT grew 9% year on year to $57.7 billion and recorded its strongest regular-way net flows in four years, per the firm's results.
Summary
Blackstone's real estate division reported a 1.6% decline in assets under management in the third quarter, to $309.0 billion, according to the New York-based firm's third-quarter results released Thursday. Lower valuations and $7.0 billion of realisations outweighed new capital raised. Over twelve months, the division's AUM fell 3.6% from $320.5 billion. Real estate was the only one of Blackstone's four investment segments to lose assets over either period, while firm-wide AUM rose 10% to a record $1.4 trillion.
Market activity accounted for $3.4 billion of the $5.2 billion quarterly decline, with the remainder reflecting realisations exceeding net inflows. Fee-earning AUM was flat at $277.8 billion. Chief financial officer Michael Chae said on the earnings call that widening cap rates were partially offset by data center leasing momentum and interest rate hedges, while lower-growth areas such as the multifamily housing portfolio were more affected. President and COO Jonathan D. Gray said the firm raised the cap rates it applies across holdings in response to higher base rates. The opportunistic funds fell 3.2% in the quarter and 4.0% over twelve months, while core-plus vehicles gained 1.6% and 4.3%, according to Mingtiandi's calculations. Chae noted the latest Asia real estate fund appreciated 24% over twelve months, versus 17% for the latest global fund and 13% for the latest Europe fund.
Capital formation remained solid. Blackstone raised $29.6 billion for property over twelve months, up 17% from $25.3 billion, per a Mingtiandi calculation. Quarterly inflows fell to $6.3 billion from $8.2 billion in the prior quarter, though they were up from $3.8 billion a year earlier. Core-plus strategies took in $3.3 billion, real estate debt $2.3 billion and opportunistic funds $712 million. Blackstone Real Estate Income Trust (BREIT) raised $1.3 billion and grew 9% to $57.7 billion. Gray said BREIT posted its strongest regular-way net flows in four years and 21 consecutive months of positive returns, equating to about 11% net over twelve months for its largest share class.
Fee pressure was more pronounced than the asset decline. Real estate management and advisory fees fell 9% to $628.8 million, and fee-related earnings dropped 9% to $499.2 million. Chae attributed the decline mainly to the termination of Blackstone Real Estate Partners VIII late in the April to June period, which had a full-quarter effect in the third, with lower asset values and fee incentives for longer investor commitments at Blackstone Property Partners playing a smaller role. He expects real estate base management fees to remain broadly stable through the end of the year and into 2027.
Realisations totalled $7.0 billion in the quarter, short of the $6.1 billion deployed, with opportunistic fund sales concentrated in Indian office and Japanese logistics and hotels. Over twelve months, realisations reached $29.3 billion versus $24.4 billion deployed. Chae said life sciences, Japan, India and Europe would see "a pretty robust slate of exits this year." In August, Blackstone launched a $1.3 billion stake sale in Knowledge Realty Trust, the India REIT it backs with Sattva Group, offering up to 25%; the offer was fully subscribed, reducing Blackstone's holding to about 21.5%. Logistics and data centers make up 54% of the global portfolio, and Gray expects a threefold increase in leasing across its global data center business this year. He said fundamentals point to recovery over time with new supply at a decade-plus low, while warning that legacy equity and debt in lower-growth sectors may face renewed pressure from higher rates.
Market activity accounted for $3.4 billion of the $5.2 billion quarterly decline, with the remainder reflecting realisations exceeding net inflows. Fee-earning AUM was flat at $277.8 billion. Chief financial officer Michael Chae said on the earnings call that widening cap rates were partially offset by data center leasing momentum and interest rate hedges, while lower-growth areas such as the multifamily housing portfolio were more affected. President and COO Jonathan D. Gray said the firm raised the cap rates it applies across holdings in response to higher base rates. The opportunistic funds fell 3.2% in the quarter and 4.0% over twelve months, while core-plus vehicles gained 1.6% and 4.3%, according to Mingtiandi's calculations. Chae noted the latest Asia real estate fund appreciated 24% over twelve months, versus 17% for the latest global fund and 13% for the latest Europe fund.
Capital formation remained solid. Blackstone raised $29.6 billion for property over twelve months, up 17% from $25.3 billion, per a Mingtiandi calculation. Quarterly inflows fell to $6.3 billion from $8.2 billion in the prior quarter, though they were up from $3.8 billion a year earlier. Core-plus strategies took in $3.3 billion, real estate debt $2.3 billion and opportunistic funds $712 million. Blackstone Real Estate Income Trust (BREIT) raised $1.3 billion and grew 9% to $57.7 billion. Gray said BREIT posted its strongest regular-way net flows in four years and 21 consecutive months of positive returns, equating to about 11% net over twelve months for its largest share class.
Fee pressure was more pronounced than the asset decline. Real estate management and advisory fees fell 9% to $628.8 million, and fee-related earnings dropped 9% to $499.2 million. Chae attributed the decline mainly to the termination of Blackstone Real Estate Partners VIII late in the April to June period, which had a full-quarter effect in the third, with lower asset values and fee incentives for longer investor commitments at Blackstone Property Partners playing a smaller role. He expects real estate base management fees to remain broadly stable through the end of the year and into 2027.
Realisations totalled $7.0 billion in the quarter, short of the $6.1 billion deployed, with opportunistic fund sales concentrated in Indian office and Japanese logistics and hotels. Over twelve months, realisations reached $29.3 billion versus $24.4 billion deployed. Chae said life sciences, Japan, India and Europe would see "a pretty robust slate of exits this year." In August, Blackstone launched a $1.3 billion stake sale in Knowledge Realty Trust, the India REIT it backs with Sattva Group, offering up to 25%; the offer was fully subscribed, reducing Blackstone's holding to about 21.5%. Logistics and data centers make up 54% of the global portfolio, and Gray expects a threefold increase in leasing across its global data center business this year. He said fundamentals point to recovery over time with new supply at a decade-plus low, while warning that legacy equity and debt in lower-growth sectors may face renewed pressure from higher rates.
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