One of the interesting take aways from the Blackstone earnings report is that, at least in its real estate portfolio, there are signs of having hit or being near a bottom. The company said that it saw property values in the hotel and office segments begin to stabilize – the return for its real estate funds was a negative 0.5% in the most recent quarter versus a negative 29% in the year-ago quarter.
This could be a good sign for the overall commercial real estate market.
In its conference call with investors and analysts, Blackstone said it was beginning to “deploy” capital once again that means it saw some juicy deals at depressed prices. Interestingly, Blackstone was seeing banks finally looking to sell in part because of the higher property valuations but more so because the sellers could “absorb negative value adjustments.” What that means is that banks have stronger capital positions now and can tolerate write offs related to some of its real estate holdings. For banks, it’s a matter of having stronger balance sheets and wanting to take the capital tied up in these loans and securities and put them to use where they can get a nice return on capital.
Blackstone essentially declared the bottom has been hit in the office market in New York and London – vacancy rates have peaked. It noticed a pick up in leasing activity. That said, Blackstone see weakness remaining in rental rates and occupancy.
On a day when we saw disappointing economic data (a rise in jobless claims and a durable goods orders that rode the wave of airline orders to Boeing), Blackstone’s report regarding real estate gives some signs that at least in the commercial market, we may be turning an important corner.