Blackstone’s net income fell during the fourth quarter, and the investing giant’s assets under management came in shy of the $1tn target it expected to reach in 2022 as fundraising weakened in some of its strategies aimed at individual investors.
The New York investment firm reported net income of $557.9m, or 75 cents a share, compared with a profit of $1.4bn, or $1.92 a share, during the same period a year earlier.
A drop in the value of Blackstone’s real estate investments contributed to the profit decline. Valuations fell by 2% and 1.5% from the previous quarter for its two main strategies.
Blackstone’s assets under management rose to $974.7bn, up from $950.9bn in the prior quarter and $880.9bn a year earlier. The firm raised $43.1bn in the quarter and $226bn for the full year.
That wasn’t enough to push Blackstone past its goal set in 2018 of reaching $1tn in assets by 2026, which it had since said it expected to reach in 2022.
Breit, Blackstone’s nontraded real-estate investment trust aimed at individual investors, posted a return of 8.4% in 2022. Yet the vehicle experienced an uptick in requests from investors to sell shares in the fourth quarter. That caused Blackstone to limit redemptions and led to a big drop in its stock. The shares have since recovered much of that ground.
READ Why Blackstone’s BREIT is a cautionary tale for private funds
Breit and Blackstone’s nontraded business-development company, Bcred, have been big drivers of its asset and fee growth in recent quarters as the portfolios of institutions such as pension funds and sovereign wealth funds become saturated with private assets.
On 3 January, Breit struck a deal with UC Investments, the entity that manages the endowment for the University of California system. Under the agreement, UC Investments said it would put $4bn into Breit and hold the shares for six years. Blackstone is contributing $1bn of its own Breit shares to the venture, effectively backstopping UC’s returns until its commitment is exhausted.
On 25 January, UC Investments said it was committing another $500m to Breit under the same terms.
“We’re north of $14bn of liquidity, and that makes us feel pretty good, not only to help meet investor requests but also for potential deployment,” Blackstone president Jonathan Gray told The Wall Street Journal.
Blackstone reported comparable cash flows were up 13% across Breit’s portfolio in 2022, and Gray said the tone of Blackstone’s conversations with financial advisers had improved in recent weeks.
The firm said the value of its corporate private equity portfolio climbed by 3.8% in the quarter. That compares with a gain of more than 7% for the S&P 500.
Blackstone’s private credit portfolio, which is nearly all floating-rate debt, appreciated by 2.4% in the quarter as interest rates rose. Blackstone’s hedge-fund investments climbed by 2.1%.
Distributable earnings, or cash that could be handed back to shareholders, came in at $1.3bn, or $1.07 a share, compared with $2.3bn, or $1.71 a share, a year earlier, as the firm sold off fewer assets.
Earlier this month, Blackstone said it finished raising a $25bn fund dedicated to secondaries, a type of transaction in which the fund buys interests in other private equity funds from existing investors.
Perpetual capital assets under management climbed by 18% to $371bn.
Blackstone in October struck a deal to buy a majority stake in the climate technologies business of Emerson Electric in a deal that valued the unit at $14bn.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com
This article was published by The Wall Street Journal, a fellow Dow Jones Group brand
Banks should be on alert for Russian oligarchs attempting to circumvent U.S. sanctions by investing in commercial real estate, a U.S. Treasury Department watchdog said.
Wealthy Russians with ties to the Kremlin are likely attempting to evade the economic sanctions placed on them in the U.S. by moving money into the commercial-real-estate sector, where complex financing methods and opaque ownership structures can help bad actors hide funds, the Treasury’s Financial Crimes Enforcement Network, better known as FinCEN, said Wednesday.
FinCEN, which serves dual roles as the U.S.’s financial intelligence unit and anti-money-laundering regulator, is the recipient of the suspicious activity reports that financial institutions are required to file if they suspect a transaction may be illicit in nature. Law-enforcement officials can consult the reports when conducting investigations into financial crimes.
The Biden administration has targeted wealthy Russians as part of its response to President
invasion of Ukraine last year, placing those with close ties to the Russian government on blacklists that are intended to prevent them from accessing the U.S. financial system.
The alert issued by FinCEN on Wednesday is the Treasury’s latest effort to prevent sanctioned Russians from finding ways to evade such financial restrictions. In an 11-page report, FinCEN listed a number of potential red flags and typologies it said banks should be on the lookout for.
“Thanks to international pressure and the economic restrictions that more than 30 countries have imposed on Russia for its brutal war against Ukraine, sanctioned Russian elites are increasingly left with fewer options for moving and hiding their ill-gotten wealth,” FinCEN Acting Director
Himamauli Das
said.
Sanctioned individuals may try to use pooled investment vehicles or offshore funds to avoid due-diligence processes, FinCEN said in its alert. Banks aren’t typically required to verify the identities of individuals who own less than 25% of a fund. Sanctioned individuals could keep lowering their stakes to avoid detection, while still maintaining control of the fund, FinCEN said.
Oligarchs also may use shell companies and multiple layers of legal entities or trusts, or transfer their assets to a family member or business associate to conceal their ownership, the Treasury bureau added.
Sanctioned individuals aren’t just investing in high-end or luxury properties, according to the alert. In some cases, they may seek out more inconspicuous investments that provide stable returns without drawing unwanted attention. Such sanction evasion strategies are just as likely to occur in small to midsize U.S. cities as they are in the largest metropolitan areas, FinCEN said.
FinCEN’s latest alert builds on a similar warning issued last year, in which the watchdog advised banks to pay close attention to transactions involving high-value assets such as artwork, luxury yachts and jewelry.
Federal prosecutors have warned that lawyers, consultants and other service providers who work for sanctioned individuals could run afoul of the law.
An indictment unsealed earlier this week charged a former high-level FBI agent and a former Russian diplomat with sanctions violations in connection with work they did for
Oleg Deripaska,
a raw-materials magnate who was placed on a sanctions blacklist in 2018.
Write to Dylan Tokar at dylan.tokar@wsj.com
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All eyes are on mortgage rates as they start to retreat from 2022’s peak above 7%.
Justin Sullivan/Getty Images
Indicators of new home construction in December were mixed—but builder sentiment offers some reason for optimism in the coming months.
Construction was started on new homes at a seasonally-adjusted annual rate of about 1.38 million, 1.4% below November’s revised rate of 1.4 million, according to data released today by the Census Bureau and the U.S. Department of Housing and Urban Development.
FactSet
consensus estimates had expected a steeper drop, to roughly 1.36 million.
Single-family starts increased from the month prior, rising 11.3% to a rate of 909,000. The percentage increase in single-family starts was the largest since November 2021, according to historic data.
Permits, a forward-looking indicator of future construction, fell 1.6% month-over-month to a seasonally-adjusted annual rate of 1.33 million. Single-family permits fell for the 10th month in a row, dropping 6.5% from November to a rate of 730,000.
December’s data capped off a year of rapid change in the housing market as higher mortgage rates and home affordability hurdles weighed on buyers. About 1.55 million homes were started in 2022, representing a roughly 3% decrease from 2021. Roughly 1.65 million homes were authorized, representing a decline of 5% from 2021. For both metrics, it was the first year-over-year decline since 2009, according to historic data.
The construction data for December is comes a day after the National Association of Home Builders released its January builder sentiment survey. The latest survey showed that builder confidence improved for the first time since December 2021 as mortgage rates fell.
“It appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales,” Jerry Konter, the association’s chairman, said in a Wednesday statement. “The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023.”
Moving forward, all eyes are on mortgage rates, which have remained below 2022’s peak above 7% so far in 2023. The latest
Freddie Mac
data on mortgage rates is set for release on Thursday. Last week’s reading showed that the average rate was 6.33%, representing a decrease of 0.15 percentage points from the week prior.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
Seven years ago, Phil Levin and his girlfriend, Kristen Berman, pondered a common question: Should we move in together?
Levin assumed they’d take a predictable path and find a more affordable apartment outside of pricey San Francisco. But Berman, a behavioral scientist, shared her reservations about leaving their friend network – and some facts to back it up.
“All the behavioral science research shows that that’s one of the worst things you can do for your happiness,” Levin says.
Instead, the couple rented a Victorian-era mansion in San Francisco’s Hayes Valley neighborhood and invited nine friends to move in. Today, they co-own a multiunit property in Oakland, California, called Radish, which houses 17 adults and two infants.
It took some effort to find the right property and figure out finances. But the now-married couple couldn’t imagine designing their life — or raising their daughter — any other way.
“Being able to have this extended family of ‘aunties’ and ‘uncles’ close by has been wonderful,” Levin says.
Many co-buyers operate on a smaller scale. But no matter the size of your group, co-buying requires extra planning and paperwork. If you’re willing to get vulnerable about your finances and long-term goals, the payoff of companionship can be worth it.
Keep an open mind
In the National Association of Realtors’ 2022 Profile of Home Buyers and Sellers, a record-high 5% of first-time home buyers were “other household compositions” — that is, something different than single, married or coupled.
“It can be a great situation, and a way to enter the market that they wouldn’t be able to enter otherwise,” says Don Koonce, a real estate agent in Seattle who has helped dozens of co-buyers during his eight years in real estate.
Many co-buyers Koonce has worked with are platonic friends who have been living together for years. But they’re as diverse as the types of homes they buy, which range from traditional single-family homes to condos and duplexes.
The right home depends on your group’s size and tolerance of personal versus shared space. Houses with basements work well for separate living spaces, Koonce says, or you could remodel.
Recently, Koonce helped a mother and daughter buy a split-level that they renovated into two distinct units, including separate kitchens.
“It was beautiful,” he says. “I don’t see any problem with a resale on that, because somebody could rent it out.”
Also see: Here’s how to save money by sharing with your neighbors
Stress-test your relationship
Even for family members or experienced roommates, the financial commitment of co-buying raises the stakes.
Ashley Agnew is an investment advisor and financial therapist with Centerpoint Advisors, a wealth management firm in Needham, Massachusetts. When working with co-buyers, she role-plays worst-case scenarios to “stress test” the relationship, such as how they’d handle major home repairs or theft.
“You really do have to get a little bit financially naked with the person that you’re buying with,” she says. “There has to be a lot of transparency.”
Agnew always recommends that co-buyers seek legal counsel. An estate attorney can draft a cohabitation agreement — something that’s not just for romantic partners, she notes. That way, all parties know what to expect if someone wants out of the homeownership commitment.
“It’s almost like running a minibusiness, especially if it’s not a coupleship,” Agnew says.
An estate attorney can also help co-buyers understand options for titling the home, such as joint tenancy or tenancy in common. Each arrangement has pros, cons and legal obligations.
Don’t miss: How people bought homes in the 1980s when mortgage rates were 18%
Find the right resources
To move your plans from dream to reality, it’s essential to find a lender that is familiar with — and supportive of — co-buyers’ unique needs. That’s often the first hurdle, Koonce noted. Some realtors hesitate to work with co-buyers, too.
“It’s a lot more paperwork,” he says, “and a lot more coordinating and getting people to agree.”
To provide better service, Koonce earned a professional certification established by Seattle-based real estate startup CoBuy. The company offers education for real estate agents, attorneys and lenders, as well as services for co-buyers themselves.
After establishing Radish, Levin found his inbox flooded with questions about co-buying and co-living. The interest exposed an information gap: People craved trusted guidance on how to do this successfully.
So in 2020, Levin teamed up with close friend Gillian Morris to co-found the Substack newsletter Supernuclear. It provides advice, templates and tools to navigate common challenges of co-buying and co-living.
“We didn’t invent this concept,” Levin says. “We’re sort of standing on the shoulders of other people, so there’s sort of a pay-it-forward element where we wanted to have other people experience the happiness and meaning that we’ve gotten through this.”
More From NerdWallet
Abby Badach Doyle writes for NerdWallet. Email: abadachdoyle@nerdwallet.com.
Go ahead, blame remote work.
The office sector has been the biggest drag on real-estate investment trusts in 2022, which is shaping up to be their second-worst year on record, according to Morgan Stanley’s REIT outlook.
Total returns were pegged at nearly -37% (see chart) on the year through Dec. 9, ranking office as the biggest drag on REITs. Overall, REITs were headed for a roughly -22% total return, on pace for the worst year after 2008, according to the Morgan Stanley team.
Shares of office REITs are sinking.
Thomson Reuters Eikon; SNL; Morgan Stanley Research
“REITs had a tough year,” the team wrote Friday. But they also expect more pain in 2023, given that REIT and S&P 500 earnings both likely still need to reset lower, as do commercial real-estate prices.
“Indeed, [commercial real-estate] prices are still up +7.3% [year over year] and we see prices falling -15% over the next 12-24 months for apartment and industrial, -27% for quality retail, and -37% for office,” they wrote.
The U.S. housing market sputtered this year after the Federal Reserve in March kicked off its campaign of interest-rate increases to lower inflation. The toll on commercial properties, however, has been harder to detect, outside of lingering low levels of workers returning to the office, slashed REIT equity prices
DJDBK,
and redemption limits recently placed on several major private real-estate funds.
REITs invest in all types of real estate, from hotels to office towers to industrial lots, and own an estimated $4.5 trillion in assets across the U.S., according to data from the National Association of REITs.
The Dow Jones Equity REIT Index
DJDBK,
was down 24.7% on the year through Friday, while the S&P 500
SPX,
was $19.1% lower on the year, according to FactSet.
Distressed commercial-property sales have been relatively few this year but could tick up in 2023, when billions of dollars in loans come due and landlords face much higher interest rates and likely lower property values.
Major technology companies have been announcing plans to reduce office space, including Facebook parent Meta Platforms Inc.
META,
and Twitter, now owned by Tesla Inc.
TSLA,
CEO Elon Musk, who has reportedly stopped paying rent at Twitter’s offices.
Now read: ‘It was not sustainable or real’: Tech layoffs approach Great Recession levels
In another sign of potential stress to come, some $162 billion of maturing loans in commercial-mortgage bond deals come due in 2023, the most in the next decade, according to CRED iQ, which tracks property data.
A duplex apartment in one of the most prestigious co-op has sold for $19 million.
JACOB ELLIOTT
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A duplex in one of the most prestigious co-op buildings in San Francisco has sold for $19 million, the highest price paid for an apartment in the city so far this year, according to the Multiple Listing Service.
The four-bedroom residence was listed in January for $30 million, and the price dropped to $19 million in August. It went into contract in early November and closed last week, according to listing records and Sotheby’s International Realty–San Francisco Brokerage, whose agent Gregg Lynn represented the seller, while Mary Lou Castellanos represented the buyer.
“At over 7,000 square feet, the apartment is one of the largest in San Francisco and is located in its most revered cooperative building,” Mr. Lynn said in an email.
The sales price reflected the market condition in 2022, whereas fewer buyers are competing for large apartments and able to find opportunity, Mr. Lynn said.
The was designed by architect Conrad Alfred Meussdorffer in 1924 in his signature Beaux-Arts genre, featuring a grand entrance and a porte cochere.
JACOB ELLIOTT
“If they are to sell, other listings will be—or have already been—reduced to their right price for today’s market,” he said. “San Francisco remains a desirable location for full- or part-time residence, and there hasn’t been in recent memory a better time to purchase.”
FROM PENTA: Billionaire Businessman Ronald O. Perelman’s Design Collection Heads to Auction
The cooperative building, located in the tony Pacific Heights neighborhood, was designed by architect Conrad Alfred Meussdorffer in 1924 in his signature Beaux-Arts genre. It has 10 full-floor apartments and features a grand entrance, a porte cochére, private gardens and an attended lobby.
The apartment has a central foyer with Versailles-patterned hardwood floors, a circular floor plan for entertaining, a large living room with a fireplace and large windows framing panoramic views of the Golden Gate Bridge, Alcatraz and Russian Hill, a great room with a fireplace and views of the Bay, a library and a conservatory that opens to one of the terraces, the listing said.
The primary bedroom suite occupies the second floor and comes with dual marble baths and two private dressing wings, according to the listing.
William Oberndorf, founder of the investment firm SPO Partners and a local philanthropist, and his wife, Susan, purchased the home in 2018 for $25 million, property records show.
The buyer was listed in the property records as a limited liability company.
Both parties could not be reached for comment.
This article originally appeared on Mansion Global.
If someone promises you the “deal of a lifetime,” it’s probably not a good investment.
That’s what finance guru Matthew Onofrio, who sold a program claiming to have cracked the code on commercial real estate, promised inexperienced investors looking to strike it rich. But prosecutors say it was all a fraud aimed at lining Onofrio’s pockets.
The 31-year-old native of Eau Claire, Wis., appeared on investing podcasts and at conferences with a compelling tale. He said he had walked away from a promising career as a nurse anesthetist when he discovered a real estate strategy known as triple net investing, through which he had amassed a portfolio worth over $150 million in just three years.
But between 2020 and August of this year, federal prosecutors in Minnesota say, Onofrio had ripped off numerous banks to the tune of $35 million by roping investors into a complex web of quick-flip real estate sales, fraudulent mortgage applications and doctored appraisals.
In a statement, Onofrio’s attorney, Marsh Halberg, said none of his client’s investors had been hurt financially by their investments.
“The defense is aware of very few, if any, transactions where the investors have suffered actual losses at his time. We believe most of the transactions with Mr. Onofrio still maintain a positive cash flow and /or an increase in the value of the property that was purchased,” Halberg wrote in an email.
A civil suit filed this year involving a radiologist from Puerto Rico named Matthew Hermann, who wanted to get involved in real estate investing with his wife, laid out how Onofrio operated.
The suit said the pair met at a networking conference in Colorado in 2020 and hit it off while discussing real estate opportunities. Hermann said he was hoping to build up a real estate portfolio that would provide him with enough income that he could stop working.
Hermann said in court papers that Onofrio offered to bring him into “the deal of a lifetime,” involving a commercial property for sale for $6.3 million in Minneapolis. All Hermann had to do was come up with $1.5 million for the down payment.
“Onofrio told Hermann that he won’t get to his goal of leaving his job by buying duplexes. Onofrio told him that ‘this will light gas on the fire of where you need to go’. He told Hermann that this is all about mindset’,” the court documents read.
When Hermann said he didn’t have that kind of money available, Onofrio offered to lend it to him so he could secure a bank loan for the purchase and Hermann agreed, the court filings said. What Onofrio didn’t say was that he had already reached a deal with the owners to buy the building for $4.75 million, not $6.3 million, and that the difference was going into his pocket, the suit claimed.
Hermann was then stuck paying nearly $6,000 a month in loan payments to Onofrio in addition to his bank loan.
“Onofrio pushed Hermann—a novice with real estate—into this purchase with grand promises of the deal of lifetime. The reality, though, was that Onofrio was the one assured to make money on the deal, not Hermann,” the papers read.
Hermann later tried to sell the property and said he found a buyer willing to pay $6.3 million for it, but the deal fell through due to litigation surrounding Onofrio’s loan.
Hermann’s attorney didn’t respond to a message seeking comment.
Federal prosecutors described a similar pattern, with Onofrio allegedly placing his own money into investors’ accounts to make their finances look better to lenders, and also fabricating appraisal documents to inflate the value of properties.
In one deal in 2021, a Minneapolis commercial property was sold three times in just five months, passing through more than one business entity Onofrio controlled. By the end of the string of transactions, the price had jumped by nearly $4 million, business publication Finance & Commerce reported.
Onofrio is charged with three counts of bank fraud and prosecutors say they are seeking the forfeiture of $35 million seized during the course of the investigation.
By Joe Hoppe
Shares in Trafalgar Property Group PLC rose Monday after the company said that it has entered a conditional agreement to buy assets and leasehold premises for a hydroponic research and development facility for 30,000 pounds ($35,664) from May Barn Horticultural Consultancy Ltd.
Shares at 0802 GMT were up 0.03 pence, or 17%, at 0.21 pence.
The residential and assisted-living property developer said that the cash acquisition is a further step in its plans to facilitate its vertical hydroponics strategy with opportunities for research relevant to food, cosmetic and pharmaceutical products.
The acquisition is conditional upon shareholder approval as May Barn is controlled by Trafalgar’s Executive Director Paul Challinor. The company will seek approval at a general meeting set for Dec. 8.
The consideration is considered to be significantly less than it would cost to purchase and set up new equipment and fit out new premises, Trafalgar said.
The company’s residential property activities have continued to progress during 2022, including receiving outline planning permission a private residential plan with an option to purchase land, it added.
Write to Joe Hoppe at joseph.hoppe@wsj.com
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The housing market has pulled back from its pandemic frenzy as mortgage rates have risen.
Chet Strange/Bloomberg
Two closely watched gauges of new-home construction fell in October—the latest sign of the continued housing market pullback.
Housing starts—an indicator of the beginning of construction on a new home—in October were at a seasonally-adjusted annual rate of about 1.43 million, down 4.2% from a revised 1.49 million in September. Permits, an indicator of future construction, fell 2.4% to about 1.53 million from about 1.56 million in September.
The reading was better than consensus estimates gathered by
FactSet
had anticipated. Housing starts were expected at a seasonally-adjusted annual rate of about 1.42 million, while permits were expected at a rate of about 1.51 million, according to FactSet.
The slowdown in construction adds to the picture of a housing market pulling back from its pandemic frenzy as mortgage rates remain near 7%, more than double their rate at the beginning of the year. Single-family construction led the pullback, with both one-unit starts and permits at their lowest levels since May 2020. Year-to-date, single-family starts are down 7.1% on an unadjusted basis.
The decline in construction comes as home builders remain sour on the housing market. The National Association of Home Builders’ index tracking builder sentiment declined in November for the 11th month in a row, the trade group said Wednesday. With the exception of April 2020, the index was at its lowest level since 2012.
“Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” Jerry Konter, the trade group’s chairman, said in a statement. An index subcomponent measuring traffic of prospective home buyers fell for the eighth month in a row, the data showed.
Mortgage rates have been gaining throughout 2022, climbing above 7% for the first time since 2022 earlier this year. Home sales, in response, have fallen. Sales of existing homes fell to a preliminary seasonally-adjusted annual rate of 4.71 million in September, the lowest monthly rate since the early months of the pandemic.
Home sales in October likely continued to slump, according to FactSet consensus estimates for the coming National Association of Realtors report. Consensus expects existing homes in October to have been sold at a seasonally-adjusted annual rate of 4.37 million. Such a rate would represent a 30% fall from the same month last year, and a 7.3% month-over-month decline. October’s data is expected at 10 a.m. on Friday.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
By James Glynn
SYDNEY–Sales of new homes plunged across Australia in October, as a record pace of interest-rate increases since May and surging construction costs chased buyers away.
Sales of new homes fell by 22.8% in October compared with September, with all regions hit hard, the Housing Industry Association said Thursday.
Sales of new homes had already fallen 15.8% in the three months to the end of September, due to increases in the cash rate starting in May 2022, according to the association, which represents home builders.
The Reserve Bank of Australia has added 275 basis points to the official cash rate since May, with further hikes expected in December and early next year.
“The increase in interest rates is compounding the rise in the cost of new-home construction and further reducing the capacity of borrowers to finance the build of a new home,” said Tim Reardon, chief economist at the association.
Despite the fall in sales over the past four months, a significant volume of home building is under way, and many homes are still to commence construction, he added.
This will ensure that work on the ground remains strong through 2023, Mr. Reardon said.
“The consequence of the fastest increase in the cash rate in almost 30 years will see detached-home building activity slow to its lowest level in a decade by 2024, he said.
For the three months to October, compared to the previous three months, new home sales in Queensland were down by 31.9%; the number for Victoria was down by 22.8%; New South Wales was down by 19.6%; and Western Australia new home sales were down by 9.1%, the Housing Industry Association report showed. South Australia saw the only increase, rising by 13.9%.
Write to James Glynn at james.glynn@wsj.com