Blackstone now has more than $100B in dry powder

From left: Stephen Schwarzman and Michael Chae

From the New York website: Thanks in part to some major real estate sales, the Blackstone Group had a profitable third quarter. But arguably the most interesting news was buried in the earnings presentation: the fund manager's dry powder crossed the $100 billion threshold for the first time.

Blackstone now has $102 billion in uncalled capital - up 20 percent from $85 billion a year ago. The firm's real estate funds alone sit on $33.2 billion in dry powder – up from $27 billion.

On the one hand, this spike reflects Blackstone's success in raising new funds from investors: 75 percent of the firm's current dry powder was raised in 2015 or 2016. Investors in private funds make commitments to contribute a certain sum, but the money typically won't be called upon until the fund manager has found suitable investments (such as an office tower) to spend it on. In the meantime, the undrawn capital is listed as dry powder. In private equity and real estate, major investments often take time, meaning any fund manager that raises a lot of money is also bound to sit on a lot of dry powder for a while.

But the spike also reflects something else. “The environment has been more challenging for deployments,” the firm's CFO Michael Chae said during an earnings call Thursday. With asset prices inflated after years of market growth and interest rates at record lows, it's increasingly more difficult to find investments that yield the double-digit returns Blackstone's customers have grown accustomed to.

The challenge affects the private real estate fund industry as a whole, as The Real Deal reported in March.

Blackstone's CEO Stephen Schwarzman argued that there is little time pressure on Blackstone to shrink its pile of dry powder soon. “There's no shot clock,” he said during the call. “We don't have to be fully invested unless we see things we like.”

Blackstone reported a company-wide profit of $312.9 million for the third quarter. The firm's real estate division grew its assets under management to $101.9 billion, from $93.2 billion a year ago, driven primarily by investments in debt and core-plus real estate.

Blackstone sold $7.2 billion worth of real estate in the quarter, thanks largely to the $6.5 billion sale of Strategic Hotels & Resorts to Anbang Insurance.

The company's executives described the U.S. real estate market as strong, with a few exceptions: “In high end residential pretty much all over the world the market is soft,” Schwarzman said. “Fortunately we don't do those.”