Blackstone is doubling down on the data center boom supercharged by AI.
In fact, the New York-based asset management giant “is positioning itself to be the largest financial investor in AI infrastructure in the world,” chief executive Stephen Schwarzman, said during his company’s second-quarter earnings call on Thursday.
Blackstone projects the industry will see $1 trillion in total capital expenditures in the US over the next five years to build and facilitate new data centers, with just as much forecast to be spent abroad. Such a trend “will lead to unprecedented investment opportunities for our firm,” Schwarzman added.
“I believe the consequences of AI are as profound as what occurred in 1880 when Thomas Edison patented the electric lightbulb,” said Schwarzman. “While it took years to develop commercially viable products, the subsequent buildout of the electric grid over the following decades has parallels to the creation of data centers today to power the AI revolution.”
Blackstone’s data center portfolio consists of $55 billion of data centers, including those under construction, and $70 billion in prospective pipeline development. Its largest data center portfolio company, QTS, has grown its lease capacity sevenfold since 2021, according to Schwarzman.
Data centers, along with warehouses and rental housing, comprise about 75 percent of Blackstone’s global real estate equity portfolio, up from 2 percent in 2007, he said.
But data centers could not save Blackstone’s real estate portfolio from posting negative returns last quarter, broadly in line with the rest of the industry’s results. The asset class, which has grown to be Blackstone’s largest at $336 billion in total assets under management, was the only asset class in Blackstone’s overall portfolio to post a loss last quarter. Blackstone’s opportunistic real estate portfolio posted returns of -5.3 percent over the trailing 12 months, while its core-plus investments posted a return of -3.1 percent.
Real estate inflows last quarter totaled $5.9 billion, deployments totaled $9.8 billion and realizations totaled $5.5 billion. Real estate assets under management rose $3 billion year over year.
However, Schwarzman maintained that “Blackstone real estate has delivered differentiated performance,” even as the increase in interest rates and borrowing costs have created a more challenging environment over the past two and a half years. He highlighted BREIT’s cumulative net return of 10 percent in its largest share class since the start of 2022 and more than 10 percent net returns annually since inception, which he said was more than double the return of the public REIT market. Nearly 90 percent of BREIT’s portfolio is in warehousing, rental housing and data centers, the last of which contributed almost 500 basis points to return over the past year.
A dearth of new construction, which Schwarzman said is down 40-70 percent for most real estate sectors, bodes well for Blackstone and its investors.
“We are confident the outcomes experienced by our investors in this cycle will further reinforce our leadership position and will result in higher allocations to Blackstone from both institutional and private wealth channels in the future,” he said.