Rising inflation acts as kindling for PE real estate deals

As inflation rises, private equity firms are building empires within their real estate portfolios.

And while all the publicly traded firms tracked in our PE Earnings Dashboard have seen strong returns from their real estate holdings, Blackstone has been especially dominant, outpacing other firms in returns and real estate fundraising totals.
Real estate attracts investors throughout the economic cycle—especially during periods of inflation, as the asset class is considered by many to be an inflation hedge, according to PitchBook’s Private Markets Real Estate Fundamentals analyst note.

For some real estate strategies and property types, such as certain residential or office properties, costs associated with inflation can be passed down to tenants. In other cases, the effects of inflation may place downward pressure on returns, even if they remain strong overall. For example, an opportunistic investment to build a brand new data center would require raw materials and labor, the costs of which are heightened during inflation, according to Anikka Villegas, an analyst at PitchBook and author of the note.

Blackstone conducted two real estate deals last month totaling over $13 billion: a $12.8 billion takeover deal for American Campus Communities consisting of a portfolio of 166 properties in 71 university markets and a $600 million-plus deal for Flatiron Park, a 22-building life science and tech complex in Boulder, Colo.

In the firm’s Q1 earnings report, Blackstone reported its opportunistic real estate portfolio grew more than 10%, outperforming its other businesses, following growth of more than 19% in Q4 2021 across all the firm’s real estate platforms.

Featured image by Malte Mueller/Getty Images

This article originally appeared on PitchBook News