(Bloomberg) — Blackstone Inc. dealmakers and executives earned 51% less in their share of profits tied to sales of bets than they did a year ago, underscoring a tough stretch in real estate.
The share of so-called carried interest that dealmakers and executives earned from profitably selling assets in 2023 fell to $896 million, from $1.8 billion in 2022. It declined the most in real estate, where the carry pool fell by 89% to $123.3 million.
Real estate makes up nearly a third of Blackstone’s $1 trillion of assets. Commercial real estate has been under pressure as rising interest rates eat into property valuations. While Blackstone seeks to bet on markets where it projects rising demand will run into constraints, the world’s largest commercial property owner wasn’t immune to the effect of rising rates.
“If we don’t deliver as much for investors, we earn less,” President Jon Gray said in an interview, speaking broadly about carried interest. “That’s the business model. That alignment is very important to investors.”
Gray told Wall Street analysts on the firm’s earnings call Thursday that he wouldn’t expect a big surge in realizations in real estate in the first half of the year.
“When the environment gets better, we think we’ll have the kind of things that the market wants — and we do it when we think values are appropriate,” he said.
Read More: Blackstone Profit Up as Jon Gray Sees ‘Virtuous Cycle’
Real estate strategies were the only part of Blackstone’s business that depreciated in value last year, with opportunistic bets down 6.3% and core investments — designed to produce steady yields over time — down 4.3%.
In private equity, the profit share known as “realized performance compensation” increased just modestly, by 3%. Buyout firms held back from selling bets, sending deal volumes plunging in the past year.
The carried interest pool rose 120% for credit, reflecting the growing clout of financiers and the returns they’re making on the back of still-elevated rates.
Bottoming Valuations
While last year was tough for real estate, Gray said he sees valuations bottoming.
In a separate interview with Bloomberg Television, he said that with the 10-year Treasury rate shifting, this could buoy real estate values. He warned that troubled assets financed in the lower-rate era will face challenges.
Still, he expressed confidence that a decline in new construction that could curtail supplies of properties in sectors like logistics will set a “foundation for a recovery.”
The firm’s real estate trust for wealthy investors notched a 0.5% loss in 2023, meaning it fell short of a threshold that would allow the asset manager to partake in profits. The Blackstone Real Estate Income Trust’s profits aren’t part of the carry pool tied to sales because it’s designed to hold bets for the long haul.
BREIT’s peers fared even worse. Starwood Capital Group, Brookfield Asset Management Ltd., and KKR & Co. reported total returns of -8.6%, -6.7% and -6.25% respectively.
–With assistance from Sonali Basak, John Gittelsohn, Erin Fuchs and Katherine Chiglinsky.
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.
