January 31st, 2025
"The path of travel is clear, the slope may be a little different,” Jon Gray (Blackstones COO) said on Blackstone’s fourth-quarter earnings conference call."
1. Salient points from a Costar article this week discussing Blackstone's real estate positioning and where they are allocating some of the billions in cash they are sitting on. "We're investing more because we believe the real estate market is clearly on a recovery trajectory," Gray explained. He pointed out several key factors driving this optimism: A strong U.S. economy is boosting demand for logistics properties, apartments, and hotels. The supply of new industrial and multifamily properties has decreased since 2022, which is creating opportunities for existing properties to see stronger leasing and rent growth. Additionally, the availability of capital for dealmaking has improved, further supporting the recovery. CEO Stephen Schwarzman explained that the biggest driver behind the firm’s financial performance in Q4 was their infrastructure strategy, particularly Blackstone Infrastructure Partners (BIP), which brought in $1.2 billion in fee revenue. He highlighted that BIP has shown impressive investment returns since its launch just six years ago, including an annual 17% net return for its commingled strategy. This strong performance has led to significant growth, with assets under management reaching $55 billion, a 34% increase from the previous year.Blackstone’s infrastructure investments focus on areas like energy transition, transportation, digital projects, and water and waste management. The funds also collaborate with Blackstone’s real estate division on data centers, a sector that has experienced massive global demand. The firm has also ramped up its investments in data centers, with leased properties now totaling over $80 billion. In fact, Blackstone’s data center subsidiary, QTS Realty Trust, reported more leasing activity last year than in the prior three years combined. As for overall financial results, Blackstone’s net income for Q4 climbed to $1.3 billion, up from $704 million a year earlier. For the full year, net income nearly doubled, reaching $5.4 billion compared to $2.8 billion in 2023.
2. Cred IQ reported steep growth in loan modifications since January of 2022 across CMBS, SBLL, CRE CLO, and Freddie Mac showing that 2,778 loans were modified representing a cumulative loan balance of $35.5 billion.
3. Krystyna Blakeslee, a partner at Gibson, Dunn, & Crutcher in New York had some interesting takeaways on the market in an interview this week. She has led some of the country's largest commercial real estate transactions in recent years. In speaking on the lending landscape she noted that private lenders have increasingly entered the market, bringing innovation with flexible terms, structures, and new asset classes like mezzanine financing, preferred equity, and loan purchases. Their capital sources, such as insurance funds, allow them to offer deals that traditional banks can’t match. In the CMBS market, B-piece buyers have become more influential in the origination process. By tackling potential issues early, they help improve pricing and reduce the risk of future problems, benefiting the market overall. She mentions honest property valuations as one of the key lessons of 2024 and that the market is starting to accept realistic valuations as we stated in previous weeks newsletters. She goes on to say that navigating today’s market requires creativity, flexibility, and open discussions about valuations. Structuring workouts to align with current valuations without penalizing sponsors can speed up resolutions and incentivize additional capital by offering equity upside, avoiding losses. Refinancing risk is a major concern, especially for office deals, due to the shift to shorter fixed-rate loans. Investors must now address rollover risks in the coming years, as tenant demand shifts toward newer office spaces, and rising costs for tenant improvements and leasing commissions add further pressure.
4. CMBS issuance reached $108.2 billion in 2024, up fro $40.6 billion in 2023.
5. BXP’, the US's largest publicly traded developer and office owners focus on high-end office spaces is proving successful, as the company reported over 2.3 million square feet of new and renewed leases in Q4, marking its strongest leasing quarter since mid-2019. In total, BXP leased 5.6 million square feet in 2024, a 35% increase from the previous year, driven by the return-to-office trend and corporate earnings growth. The company’s portfolio, concentrated in top-tier markets like New York, Boston, San Francisco, and D.C., has seen lower vacancy rates compared to the broader office market, with premium spaces experiencing significantly higher demand and rents. BXP's average lease term has also spiked, reflecting tenants' increased confidence in long-term commitments. While the overall office market remains divided, with a strong premium segment and a struggling lower-tier one, BXP's strategy of focusing on quality office spaces has positioned it well for future growth, with expectations of improved occupancy rates moving forward.
News and Notable Reports
