Blackstone Group (BX 1.70%) has made several headline-grabbing real estate acquisitions over the past year. The leading alternative asset manager has purchased billions of dollars in real estate by taking several real estate investment trusts (REITs) private.
The company's real estate shopping spree is far from over. Blackstone's management noted on its second-quarter conference call that they have an enormous amount of dry powder to continue acquiring real estate. Here's a closer look at why the leader in real estate investing expects to continue growing its massive real estate portfolio.
A magnet for capital
Blackstone ended the second quarter with $320 billion of real estate assets under management, up 54% from the year-ago period. Investors poured $48.9 billion into Blackstone's real estate funds during the quarter and $123.7 billion over the last 12 months. The big driver in the quarter was the launch of its 10th global opportunistic fund, which raised $24.4 billion. Blackstone's non-traded REIT, Blackstone Real Estate Income Trust (BREIT), also continued to attract investor capital, raising $6.6 billion in the quarter, with another $1.4 billion of subscriptions coming right after the period ended.
Two factors drove the continued flood of capital into Blackstone's funds: The power of its brand and its superior performance. That performance has been on full display this year. While shares of public REITs declined 17% in the second quarter, Blackstone's core plus real estate funds were up 2.3%. Meanwhile, its real estate strategies appreciated 9% to 10% this year compared to a 20% decline in the REIT index. Blackstone's ability to prosper in a historically challenging market environment is leading more investors to entrust Blackstone with their capital.
Putting that capital to work gobbling up REITs
Blackstone has been working hard to put those funds to work generating returns for investors. It deployed $25.6 billion of capital into real estate in the second quarter and $68 billion over the last 12 months. Notable recent deals included BREIT's $5.8 billion acquisition of residential REIT Preferred Apartment Communities, which closed in late June. BREIT also closed its $3.7 billion deal for fellow non-traded REIT Resource REIT in late May.
Blackstone recently closed its latest deal, buying industrial REIT PS Business Parks for $7.6 billion earlier this month. Meanwhile, BREIT is working on completing its nearly $13 billion deal for student housing REIT American Campus Communities, which it expects to close in the third quarter.
A massive war chest to continue shopping
Even after completing its latest deals, Blackstone has an enormous amount of dry powder to continue buying real estate. It has raised more than $30 billion for its new global real estate flagship fund, which is 50% larger than the prior fund and the largest real estate private equity fund ever raised. As noted, it has already closed $24.4 billion in fund inflows and secured investors for the rest of the remaining allocation. Combined with the currently available capacity of its other funds, it has over $50 billion of capital to invest opportunistically in real estate around the globe. Meanwhile, more funds will likely flow into Blackstone in the coming months. Investors continue to pour money into perpetual funding vehicles like BREIT. Blackstone also expects to launch another new $30 billion real estate flagship fund early this fall.
Put everything together, and Blackstone has an unprecedented amount of capital to put to work at a time when there's a lot of dislocation in the market because of surging inflation, rising interest rates, and slowing economic growth. These market conditions lead Blackstone to expect that "historically attractive investment opportunities" will arise from this dislocation over the next few years, according to comments by CEO Steve Schwarzman on the second-quarter call. The firm plans to continue its rigorous focus on choosing the best sectors and assets to put this capital to work. Lately, those sectors have been industrial and multifamily, which continue to benefit from strong demand tailwinds.
That will enable the company to generate lucrative management and performance fees as its funds deliver returns for investors. These two income streams will allow Blackstone to continue paying an attractive dividend, which has yielded over 4.5% in the past year.
Blackstone will continue being a major player in real estate
Blackstone is one of the world's largest real estate investors. That's mainly due to its successful thematic investing approach of seeking out sectors and locations where it sees long-term demand tailwinds driving growth. While the company has acquired a massive amount of real estate across its top themes over the past year, it still has an enormous amount of dry powder because investors continue entrusting it with more of their capital. As a result, Blackstone appears poised to continue its real estate buying binge.