This Dividend Stock Has an Enormous War Chest to Hunt for Real Estate Bargains

Over the last several months, there has been a lot of discussion about money flowing out of Blackstone's (BX -0.43%) real estate funds. The leading alternative asset manager has had to repeatedly cap redemptions at its non-traded REIT Blackstone Real Estate Income Trust (BREIT). However, while money has been flowing out of that investment vehicle, it has been flowing into other real estate funds.

As a result, Blackstone has amassed a large amount of capital to deploy on new investments as opportunities arise. Given the recent deterioration of real estate and credit market conditions, Blackstone believes the investment environment is growing compelling. As the company puts its capital to work on deals, it'll boost its fee-related earnings and performance revenues, giving it more money to pay dividends.   

A monster fund

Blackstone recently closed its latest global real estate fund, Blackstone Real Estate Partners X (BREP X). It had $30.4 billion of total capital commitments. That's the largest real estate or private equity drawdown fund ever raised. To put the size of the fund into context, BREP's previous global opportunistic fund had about $21.6 billion of commitments. It has now raised slightly more than $100 billion across all 10 global real estate funds. 

Blackstone has raised a lot of money from investors because of its returns. BREP has delivered a 16% net internal rate of return (IRR) on its global funds over the last 30 years. Meanwhile, the company's real estate funds produced differentiated results last year:

Data source: Blackstone and NAREIT. 

As that table showcases, Blackstone's real estate investment vehicles all produced positive returns in a year when public real estate investments were cratering.

A big driver of Blackstone's returns is its thematic investment approach. The company foresaw the winds of change well before anyone else. That led it to pivot its global real estate portfolio away from sectors facing significant headwinds, like offices and malls. It shifted capital into real estate benefiting from long-term growth tailwinds, like logistics, rental housing, hospitality, lab office, and data centers. These currently comprise 80% of its real estate portfolio. 

The size of BREP X gives Blackstone the scale to capitalize on opportunities in sectors where it has the highest investment conviction in the future. "We believe the current market is tailor-made for Blackstone Real Estate," the company's real estate co-head Ken Caplan said in the press release unveiling the fund's closing. He further stated: "We have made some of our best investments in periods characterized by the market volatility and dislocation we see today. Furthermore, sector selection has never been more critical as we witness the bifurcation of performance within real estate, which is favoring our high-conviction themes." 

Lots of funds

The final closing of BREP X adds to Blackstone's supply of available investment funds to capitalize on the current environment. The company also raised money in two additional opportunistic strategies funds (one focused on Europe and another on Asia). Combined with the global fund, Blackstone has received about $50 billion of investor capital commitments for opportunistic real estate strategies.

In addition, Blackstone has available capital within some of its other real estate funds. The company ended 2022 with $62.9 billion with which to make real estate investments. On top of that, BREIT had secured a $4 billion commitment from UC Investments to provide it with additional investment capital as it worked through its redemptions. The REIT had also sold its casino property investments in Las Vegas to its joint venture partner VICI Properties for $1.27 billion, providing additional investment capacity. 

As a result, Blackstone has a tremendous amount of financial firepower to hunt for real estate investments at a time when compelling opportunities should be plentiful. The company's ability to capitalize on the current downturn in the market cycle positions it to earn higher returns on the eventual upcycle. That should drive strong growth in its fee-related earnings and performance revenues, the bulk of which Blackstone pays out to investors via dividends.

Deep pockets to go bargain shopping

Shares of Blackstone have fallen during the current market downturn due partly to a surge in redemption requests at BREIT. However, while capital might be flowing out of that vehicle, it's flowing into other funds. That's giving Blackstone lots of money to make deals in what could be a ripe environment for real estate investments. It positions Blackstone to capitalize on an opportunity that could richly reward fund investors and shareholders in the coming years.