Blackstone Smashes Records with $30B Real Estate Fund

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Good morning. Despite market uncertainties, Blackstone has closed the largest real estate or private equity drawdown fund ever. Meanwhile, the multi-trillion-dollar rental housing market faces challenges due to rising rates, resulting in 3,200 foreclosures in the once-stable multifamily sector.

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Blackstone Seizes Investment Opportunity with Record-Breaking $30 Billion Real Estate Fund Amid Market Downturn

On Tuesday, Blackstone Inc. (BX) announced that it has successfully concluded its largest global property drawdown fund, with total capital commitments amounting to $30.4B, making it the largest drawdown fund ever raised for real estate or private equity. Talk about some dry powder…

Unprecedented scale: According to the statement, Blackstone has successfully raised $30.4 billion for Blackstone Real Estate Partners X in Q1 of 2023. This fundraising initiative surpassed the initial targets and received support from a diverse group of investors worldwide, indicating their confidence in Blackstone's real estate investment strategies and abilities. (Guess those denied redemptions are already water under the bridge)

From the horse’s mouth: According to Ken Caplan, the Global Co-Head of Blackstone Real Estate, the present market conditions perfectly suit Blackstone Real Estate's investment strategy. Historically, Blackstone has made some of its most successful investments during periods of market volatility and disruption, which are present in the current market. Additionally, given the divergence in real estate performance, the selection of sectors has become increasingly important, and Blackstone's high-conviction themes are proving advantageous.

Seeking new opportunities: Despite challenges in the broader real estate market, Blackstone's latest fund positions the firm to capitalize on attractive opportunities across various real estate sectors. The scale of the fund provides Blackstone with the flexibility and resources to pursue strategic acquisitions and developments, driving long-term value for investors.

➥ THE TAKEAWAY

Setting new standards: Blackstone's latest fundraising achievement highlights its dominant position in the real estate market, having accumulated a whopping $326B of investor capital since its inception in 1991. Despite some hurdles faced by Blackstone Real Estate Income Trust, the firm has secured $50B in capital commitments for its global, Asia, and Europe strategies. The company's portfolio is centered around logistics, rental housing, hospitality, lab offices, and data centers, which positions it well for continued success in the future.

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Rising Rates Hits Multifamily Sector: Houston Apartment Owner Loses 3,200 Units

Arbor Realty Trust has foreclosed on 3,200 multifamily units in Houston valued at $229 million, highlighting the increasing impact of surging interest rates on the multitrillion-dollar rental-housing market.

Investor setback: During the pandemic buying frenzy, Applesway Investment Group, an investor in apartment buildings, purchased over 3,200 units in Houston after borrowing almost $230 million. However, Applesway faced foreclosure on these properties as it defaulted on loans from Arbor Realty Trust. This development reflects the changing dynamics of the rental-housing market and the potential risks associated with large-scale investments during a rising rate environment.

Shifting landscape: The multifamily sector, long regarded as a stable CRE investment thanks to surging rents and cheap debt, is now grappling with rate hikes that have put investor enthusiasm on ice. Green Street estimates apartment building values have dropped over 20% from their peak. And slowing rent growth is impacting profits needed to cover debt payments.

The juice ain’t worth the squeeze: Applesway is just one of many CRE investors buying up moderately priced buildings and raising rents after making improvements. However, with rates rising, some loans are now too expensive, as seen with Applesway's loan rate jumping from 3.4% to 8%. Other investment firms, including Veritas and Blackstone Group, also face payment challenges with floating-rate multifamily loans.

➥ THE TAKEAWAY

Turbulence ahead: Foreclosures such as that of Applesway in Houston are rare, but they could become more common as loans come due and hedging contracts that protect landlords from rising interest rates start to expire. A record $151.8B in US mortgages backed by rental apartment buildings are set to expire this year, with $940.1B expiring over the next five years. Stakeholders must carefully navigate the complexities of this shifting landscape to mitigate risks and seek sustainable investment strategies.

📖 Read about a "$344 Billion Investing Mystery," where preposterous claims in private investment offerings reveal a major concern with 'Reg D' securities.

🖥️ Watch Nathan Sheets, Global Chief Economist at Citi, join Squawk Box to discuss the labor market and the latest wage trends while providing insights and analysis on economic indicators.

🎧 Listen to this discussion about the complex links between the stability of regional banks and the weakness in the CRE market on this episode of Odd Lots.

• Questionable friendship: Harlan Crow, Dallas billionaire and real estate mogul, has been giving Supreme Court Justice Clarence Thomas luxury trips, private jet rides, and stays in his superyacht. Yeah...

• Pandemic panacea: VP Kamala Harris announces a historic $1.7B in grants for over 600 community lenders to support small businesses and underserved communities recovering from the pandemic.

• Crypto lifeline: The Winklevoss twins provided a $100M loan to their crypto exchange, Gemini, to support it amid numerous setbacks during a yearlong market downturn for digital assets.

• The sun also sets: Indianapolis leads US rent growth at 6.6% in February, followed by Cincinnati and Columbus, while Sun Belt cities face declining rents amid an oversupply and slowing demand.

• Royal real estate fortune: The British Royal Family has amassed a fortune of over £1.2B from their two duchies and the Crown Estate.

• Multifamily momentum: Taylor Morrison acquired the Mountain View Gardens apartment complex for $57.4M, well above the regional average, signaling Silicon Valley's multifamily market momentum.

• Voucher boosts: LA approved an increase in voucher coverage amounts, enabling Section 8 voucher holders to afford rent in pricier zip codes, with coverage up to nearly $3,000 for 1-BR units in some areas.

• An entertaining fight: Bluebird Development, behind the Arizona Coyotes' $2.1B Tempe Entertainment District project, is contesting a Phoenix lawsuit and seeks a $2.3B settlement to avoid court.

• Multifamily forecast: The next 90 days of spring will be pivotal for the multifamily market, with current signs of slowing deterioration tempered by the challenges of record supply under construction.

• Road to recovery: Investor sentiment is still mixed, but the operating fundamentals of the CRE market remain strong despite some financial distress leading to price declines.

• Sales slump: Q1 sales volumes for NYC CRE declined significantly, with the largest sale being Hyundai’s $273.5M purchase of 15 Laight St. Distress and forced sales are likely to show up later this year.

9 of the 10 fastest-growing US counties from 2021–2022 were in just two states: Texas and Florida. At the top spot, Maricopa County, AZ was the outlier.