Posted on April - 22 - 2011
Rising Real Estate Prospects Fuel Blackstone Earnings
Today, mega-conglomerate The Blackstone Group reported a massive jump in profit for the first quarter of 2011, predominantly due to rising real estate prospects across the country.
The group, a private equity firm, invests heavily in real estate among other industries and had a gain of 58% from the last quarter. It also managed to turn a profit of $43 million, up sharply from a loss of $121 million in the first quarter of 2010.
What was the reason behind this impressive increase? Surprisingly, the answer lies with real estate.
Blackstone owns significant holdings in real estate, from residential properties to commercial ones, particularly office buildings. It has a real estate investment fund of approximately $10 billion, and has invested approximately 82% of that – and is planning more investment in the near future. This suggests that Blackstone is optimistic about the fate of the commercial real estate market and expects prices to level out and begin to rise.
Are they right? Well, it’s hard to argue against the gaudy numbers that Blackstone put up for the first three months of this year. Plus, they just inked a deal worth $9.4 billion to snap up 600 shopping malls across the country, suggesting that they expect a boost not only in the value of these properties, but also in consumer spending that supports the businesses that rent space in these malls.
While it is hard to draw conclusions about the residential market from The Blackstone Group’s numbers – most of their real estate business is commercial – it does indicate that perhaps there is an upside to investors in residential real estate in 2011. After all, the two areas are not completely separate but are linked, because if rising economic conditions benefit one, they will likely benefit the other.
Investors should closely follow the quarterly reports of these big equity firms that have big investments in real estate to see which way the wind is blowing.
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