The ongoing commercial real estate slowdown has a new victim: Blackstone, the largest owner of commercial real estate globally. The company saw its distributable earnings — the profit distributed to shareholders after expenses — plunge 36% since last year. That’s raising eyebrows on Wall Street as investors assess the fallout from last month’s regional banking crisis.
Blackrock’s decline was driven by an easing of value in its real estate investments. The company’s real estate segment’s distributable earnings fell 58% since last year. Profits from sales fell 54% to $4.4 billion, down from $9.5 billion last year, for the amount of total commercial real estate assets sold. But that number is a reflection of fewer assets sold, not necessarily of lower prices, a spokesperson for Blackstone told CNN.
After decades of thriving growth bolstered by low interest rates and easy credit, the $20 trillion commercial real estate industry has seemingly hit a wall. Office and retail property valuations have been falling since the pandemic brought about lower occupancy rates and changes in where people work and how they shop. The Federal Reserve’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry.
Recent banking stress has added to those woes. Lending to commercial real estate developers and managers largely comes from small and midsize banks, where the pressure on liquidity has been most severe. About 80% of all bank loans for commercial properties come from regional banks, according to Goldman Sachs economists.
Recently, short-sellers have stepped up their bets against commercial landlords, indicating that they think the market will continue to fall as regional banks limit access to credit. Real estate is the most shorted industry globally and the third most in the United States, according to S&P Global.
Still, on an earnings call Thursday morning, CEO Stephen Schwarzman said that Blackstone was prepared to weather “adverse market conditions.”
Blackstone president Jonathan Gray emphasized on Thursday’s earnings call that the company has diversified its investments, and more-troubled office real estate only makes 2% of their holdings. That’s down from 61% in 2007.
Gray told Bloomberg on Thursday that the collapse of Silicon Valley Bank and Signature Bank and the turmoil in the sector has created opportunity for Blackstone. The company, he said, has been talking to smaller banks to help lend to their clients as they look to tighten their credit.
The banking crisis, he said, and banks’ subsequent retreat from loose lending policies, could create a “golden moment” for credit and provide more opportunity for Blackstone to provide financing, he said.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
