Blackstone now has more than $100B in dry powder

Fund manager reports profitable third quarter

TRD New York /
Oct.October 27, 2016 01:15 PM
Stephen Schwarzman and Michael Chae

From left: Stephen Schwarzman and Michael Chae

Thanks in part to some major real estate sales, the Blackstone Group had a profitable third quarter. But arguably the most interesting news was buried in the earnings presentation: the fund manager’s dry powder crossed the $100 billion threshold for the first time.

Blackstone now has $102 billion in uncalled capital — up 20 percent from $85 billion a year ago. The firm’s real estate funds alone sit on $33.2 billion in dry powder – up from $27 billion.

On the one hand, this spike reflects Blackstone’s TRData LogoTINY success in raising new funds from investors: 75 percent of the firm’s current dry powder was raised in 2015 or 2016. Investors in private funds make commitments to contribute a certain sum, but the money typically won’t be called upon until the fund manager has found suitable investments (such as an office tower) to spend it on. In the meantime, the undrawn capital is listed as dry powder. In private equity and real estate, major investments often take time, meaning any fund manager that raises a lot of money is also bound to sit on a lot of dry powder for a while.

But the spike also reflects something else. “The environment has been more challenging for deployments,” the firm’s CFO Michael Chae said during an earnings call Thursday. With asset prices inflated after years of market growth and interest rates at record lows, it’s increasingly more difficult to find investments that yield the double-digit returns Blackstone’s customers have grown accustomed to.

The challenge affects the private real estate fund industry as a whole, as The Real Deal reported in March.

Blackstone’s CEO Stephen Schwarzman argued that there is little time pressure on Blackstone to shrink its pile of dry powder soon. “There’s no shot clock,” he said during the call. “We don’t have to be fully invested unless we see things we like.”

Blackstone reported a company-wide profit of $312.9 million for the third quarter. The firm’s real estate division grew its assets under management to $101.9 billion, from $93.2 billion a year ago, driven primarily by investments in debt and core-plus real estate.

Blackstone sold $7.2 billion worth of real estate in the quarter, thanks largely to the $6.5 billion sale of Strategic Hotels & Resorts to Anbang Insurance.

The company’s executives described the U.S. real estate market as strong, with a few exceptions: “In high end residential pretty much all over the world the market is soft,” Schwarzman said. “Fortunately we don’t do those.”


Related Articles

arrow_forward_ios

Here’s a look at Blackstone’s industrial plays after its record-breaking portfolio purchase

From left: Jonathan Gray and Steve Schwarzman with Stuyvesant Town

Behind Blackstone’s “capital strike”

October Issue is Live

The Real Deal‘s October issue is now available to subscribers!

Blackstone buys Colony Capital’s warehouse portfolio for $6B

Here’s why landlords don’t hate California’s rent control bill

65 East 55th Street and EQ Office CEO Lisa Picard (Credit: Park Avenue Tower and VTS)

Blackstone looks to sell Park Ave Tower for more than $800M

Blackstone CEO Steven Schwartzman and Stuyvesant Town (Credit: Getty Images)

After authorities vowed review of Stuy Town deal, Blackstone changes course on vacancies

Blackstone CEO Stephen Schwarzman and Stuyvesant Town (Credit: Getty Images)

Authorities will conduct review of Stuy Town deal in light of Blackstone’s vacancy strategy

arrow_forward_ios