Blackstone Real Estate Seeks Rebound From Shock Exits and Losses

(Bloomberg) -- Steve Schwarzman was concerned. It had been a rough stretch for Blackstone's real estate division. The market was brutal, and the shooting death of Wesley LePatner at the firm's New York headquarters nearly a year earlier still weighed heavily on the group.

To try to raise morale, Schwarzman invited top leaders from Blackstone's real estate business to his Manhattan apartment for dinner in June. The billionaire founder and his handpicked heir apparent, Jon Gray, wanted to see firsthand how they were holding up.

Over the course of the meal, Schwarzman played both coach and cheerleader. He emphasized how important real estate was to Blackstone's legacy and to its future. He was confident that market conditions were finally improving. Under new leader Nadeem Meghji, the group would lay the groundwork for a $30 billion fundraise later in the year.

Lifting spirits further, staff members delivered periodic updates from the NBA finals game underway at Madison Square Garden: The New York Knicks continued to defy odds and expectations. Anything seemed possible.

But the five months since have only brought more tumult for a group that was once a crown jewel for the $1.4 trillion firm. In September, Meghji, the head of the unit, announced his plans to leave, less than 10 months after the departure of his former co-head Kathleen McCarthy. The real estate market is getting slammed yet again by higher rates, the group's profit is tracking at half its 2022 peak, and the anticipated flagship fundraise has been delayed.

Blackstone's most recent financial results revealed another disappointing quarter for the real estate group. Distributable earnings for the group fell 10% from the same quarter a year earlier, assets were down $30 billion from their peak, and its opportunistic strategies lost 3.2% in three months. Blackstone's private equity division has dethroned real estate as the most profitable business in the firm.

The firm tapped David Levine and Giovanni Cutaia to shore up the unit, all under the watchful eye of Gray, who built the business and remains actively involved. The duo has to persuade investors that they can steady the ship, and they need to close new deals before they can raise more money.