Blackstone is in talks to help regional banks with lending

NEW YORK (Reuters) -Blackstone Inc, the biggest manager of private equity and real estate assets, said on Thursday it was discussing partnerships with US regional banks to help them with constraints in areas such as car loans and home improvement financing.

The New York-based firm, which is one of the world’s biggest non-bank lenders, said this was a “golden moment” to expand its credit business after banks retrenched in the wake of last month’s regional banking crisis.

“As regional banks experienced outflows of deposits, we are seeing real-time opportunities to partner with them at scale,” Blackstone President Jonathan Gray said on the firm’s first-quarter earnings call.

Gray said some banks which have good relationships with borrowers are struggling to maintain them because of their eroding capital base, and that Blackstone could help them with some of the lending flows.

“The regional banks generally play a very large role in home improvement loans, auto loans and equipment finance. Those are all areas of opportunities… We’re in a number of discussions,” Gray said. He did not identify the banks Blackstone was speaking to.

Gray’s comments came as Blackstone sought to reassure investors on Thursday it would continue to grow despite a slowdown in many pockets of the real estate market, which close to half the firm’s earnings have been exposed to.

Distributable earnings, which represent the cash used for shareholder dividends, fell to $1.25 billion in the first quarter from $1.94 billion a year earlier, Blackstone reported. That translates to distributable earnings per share of 97 cents, slightly over the average analyst estimate of 96 cents, according to financial data provider Refinitiv.

Blackstone shares were down 0.6% at $91.91 in New York on Thursday morning.

Blackstone has been grappling with redemptions at its flagship real estate income trust (BREIT), prompting it to exercise its right to block investor withdrawals at 5% of the quarterly net asset value of the fund every month since November.

The slowdown in commercial real estate — triggered by higher interest rates, fears about an economic slowdown and businesses consolidating office space in the aftermath of the COVID-19 pandemic — has also prevented Blackstone from selling assets for top dollars in many of its real estate funds .

To be sure, BREIT’s underlying performance continues to be strong, with 9% cash flow reported in the first quarter. The firm has shifted its focus in real estate to resilient sectors such as logistics and rental housing.

Traditional US office space, which has been hit hard by the work-from-home movement that followed the onset of the COVID-19 pandemic, accounts for less than 2% of Blackstone’s real estate holdings, down from 60% in 2007 when Blackstone listed in the stock market.

Morningstar analysts said that Blackstone’s challenges in the real estate sector and a slowdown in fundraising weighed on its valuation, and that some investors may view this as an attractive opportunity to pound on its stock.

“We view Blackstone as being moderately undervalued right now and envision the stock potentially getting a boost in the near term if it is added to the S&P 500 index, now that the S&P Dow Jones Indices has relaxed its criteria to allow firms with more than one class of stock into its US indexes,” Morningstar analysts wrote.

Blackstone’s fee-related earnings fell 9% to $1.04 billion, as fewer asset sales led to lower performance fees.

Blackstone’s opportunistic and core real estate funds depreciated by 0.4% and 1.6% over the first quarter, respectively. Corporate private equity and private credit funds gained 2.8% and 3.4%, respectively.

Blackstone ended the first quarter with $991.3 billion in total assets under management, up 8% year-over-year. It had set a target of reaching $1 trillion in assets by the end of 2022, an ambition it had brought forward from 2026.

Under generally accepted accounting principles, Blackstone reported net income of just $211 million, down from $2.5 billion in the prior year, owing to the drop in asset sales as well as a decline in the value of its assets.

(Reporting by Greg Roumeliotis in New York; editing by Uttaresh Venkateshwaran and Josie Kao)