Real estate boosts Blackstone’s profits in Q2

Fund manager’s property assets grow to $103.2B, Brexit had small impact

Chart of Blackstone's profits (credit: Blackstone) and Jonathan Gray (click to enlarge chart)
Chart of Blackstone's profits (credit: Blackstone) and Jonathan Gray (click to enlarge chart)

UPDATED, July 21, 11: 29 a.m.: The Blackstone Group’s profits rose in the second quarter in large part due to its growing real estate portfolio.

While the fund manager’s overall revenues fell by 3 percent in the quarter compared to a year ago, to $1.19 billion, the real estate division’s revenue grew by 35 percent to $440 million. Its real estate assets under management grew to $103.2 billion, up from $91.6 billion a year ago.

Real estate is Blackstone’s [TRData] largest division ahead of private equity, which had $99.7 billion in assets under management.

Despite the dip in overall revenue, Blackstone’s net income rose by 32 percent year-over-year to $463.1 million because it spent much less on employee compensation, carried interest and incentive fees.

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In an earnings call with investors Thursday, Blackstone’s CFO Michael Chae said Blackstone marked down the value of its U.K. office portfolio in the wake of Britain’s June 23 vote to leave the European Union, but that Britain accounts for a mere 4 percent of the firm’s real estate assets under management and that the “overall financial impact on the firm was small.” CEO Stephen Schwarzman said he expects “Brexit to create many investment opportunities over time.”

Unlike most REITs, Blackstone doesn’t earn its profits directly from real estate. Instead it makes money from asset management fees and profit shares on its investment funds.

The company’s funds, taken together, are the largest buyer of commercial real estate in New York City over the past decade, accounting for $12.6 billion worth of acquisitions, according to Real Capital Analytics. Last year, the company partnered with Ivanhoe Cambridge to buy Stuyvesant Town-Peter Cooper Village for $5.3 billion. Last month it closed on the acquisition of office building 44 Wall Street for $111.3 million.