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Essentials of Private Real Estate

Private real estate funds invest directly in real estate properties ranging from warehouses to apartments.

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introduction to Private real estate

What You Need to Know
01

Large Market Opportunity

Commercial real estate is the third largest asset class after equities and fixed income. Yet individual investors on average have a negligible allocation [ 1 ] in their portfolios, significantly lower than institutional investors. [ 2 ]

02

Attractive Risk-Return Profile

Private real estate can drive meaningful income generation and capital appreciation and can also offer a hedge against inflation, [ 3 ] as well as a low correlation to stocks and bonds. [ 4 ]

03

Where You Invest Matters

Sector and manager selection are critical. To benefit from private real estate’s opportunities, important considerations include asset quality and growth potential.

Ken Caplan, Global Co-Chief Investment Officer, and Kathleen McCarthy, Global Co-Head of Blackstone Real Estate, discuss the fundamentals of private real estate, key strategies and access to the asset class, along with Blackstone’s investment approach.

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Understanding Private Real Estate

Private real estate focuses on commercial, income-generating properties across a wide range of assets from warehouses and multifamily housing to office, hotel and retail. It excludes the for-sale residential market of both new and existing homes.

Data Centers

Industrial

Rental Housing

With more than 90% of commercial real estate privately owned, [ 5 ] the private opportunity set is several multiples the size of publicly traded real estate. Yet individual investors on average hold considerably less than 3% of commercial real estate in their portfolios [ 1 ] — due in part to a historic lack of access and a need to better understand where to invest. This underallocation by individual vs. institutional investors is now changing. [ 6 ]

Private Market Much Larger Than Public Market
US Commercial Real Estate [ 7 ]

01_Essentials of Private Real Estate_Private Market Size

Individual Investors Are Significantly Underallocated
Average Allocation to US Commercial Real Estate [ 8 ]

Essentials of Private Real Estate_Individual Investor Allocation

Portfolio Diversification Benefits

Income & Inflation

Low Correlation

Attractive Risk-Adjusted Returns

When investing in private real estate, selecting the right sectors, markets and assets can be critical to generating strong performance. It is important to focus on high-quality assets with outsized growth potential driven by long-term, secular tailwinds.

This means identifying and concentrating capital around major trends, such as the rise of e-commerce, [ 15 ] a structural undersupply in housing, or the growth in cloud computing and artificial intelligence.

Manager selection is also critical to success. Blackstone is the world’s largest owner of commercial real estate with a 30+ year track record, serving individual and institutional investors alike. [ 16 ]

Not All Real Estate Is Created Equal [ 17 ]
Cumulative Performance (US Sectors, 2008-2023)

04_Essentials of Private Real Estate_Not all real estate is created equal

Note: Past performance does not predict future returns. Opinions expressed reflect the current opinions of Blackstone as of the date hereof and are based on Blackstone’s opinions of the current market environment, which is subject to change.

Jon Gray 2021

“Not all real estate is created equal. Where you invest matters — if you invest in the right sectors even in a more challenging rate environment, you can have a differentiated outcome.”

Jon Gray

President and Chief Operating Officer of Blackstone

Private real estate managers may have greater flexibility than public REITs to invest in areas of highest conviction and execute on complex transactions given they are less subject to public market forces. Managers in private markets can more easily drive long-term value-creation opportunities, whereas public market participants may face pressure to achieve predictable quarterly earnings.

A CASE STUDY

The privatization of QTS Realty Trust, a ≈$10b data center public REIT, exemplifies Blackstone’s commitment to high conviction thematic investing, capitalizing on long-term trends in data growth. In fact, more data was created in the last 3 years (2021-2024) than all of history combined. [ 18 ]

Just as e-commerce drove demand for warehouses, cloud computing, content creation and now artificial intelligence are driving the surge in data creation and consumption. Blackstone views the rise of artificial intelligence as a once-in-a-generation engine for future growth in data centers and is committed to unlocking the full power of QTS’ platform through private ownership.

Capitalizing on Surging Growth in Data Creation
Data Created, Consumed & Stored (Zettabytes)

05_Essentials of Private Real Estate_Data Creation
QTS Exterior

Ultimately, private market investing means active ownership of less liquid assets, as value creation takes time. Liquidity needs at the total portfolio level are one important consideration before allocating to private equity. In addition, manager selection may be of particular importance given the wider dispersion of returns compared to public markets. Key manager attributes include scale, staying power and a long track record.

Education is also critical to understanding both the asset class and the secular tailwinds that drive returns. The right longterm partner must commit to broadening investors’ understanding of private real estate and what it can bring to their overall investment strategy.

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“Individual Investors” reflects data from Bain & Company, of December 31, 2022, latest available and includes all alternatives, of which real estate is just one component.
“Institutional Investors” reflects data from Hodes Weill & Associates and Cornell Baker Program in Real Estate, as of December 31, 2023.
Private real estate has historically outpaced inflation during inflationary periods. Any investment involves a high degree of risk and should only be made if an investor can afford the loss of the entire investment.
Private real estate’s returns are largely uncorrelated to that of equities, investment grade bonds, municipal bonds and public REITs. Any investment involves a high degree of risk and should only be made if an investor can afford the loss of the entire investment.
Federal Reserve, as of June 30, 2023. Represents the U.S. commercial real estate market. ”Public” is the aggregate of all public REITs that are tracked by the NAREIT Total Industry Tracker excluding Timber, Telecommunications, and Specialty sectors as of June 30, 2023.
“State of the Market: Non-Traded REITs and BDCs” (July 2022), UMB Fund Services. Represents Blackstone’s view of the current market environment as of the date appearing in this material only.
Federal Reserve, as of June 30, 2023. Represents the US commercial real estate market.
“Public Pension” and “Endowment” reflects data from Hodes Weill & Associates and Cornell Baker Program in Real Estate, as of December 31, 2023. “Individual Investor” reflects data from Bain & Company, as of December 31, 2022, latest available and includes all alternatives, of which real estate is just one component.
Diversification does not ensure a profit or protect against losses. Alternative investments generally involve a high degree of risk and investors may not get get back the amount originally invested.
NCREIF, 20-year period ending December 31, 2023. Reflects the NFI-ODCE Index. Represents Blackstone’s view of the current market environment as of the date appearing in this material only. Past performance does not predict future returns. There can be no assurance that any fund or investment will be able to implement its investment strategy, achieve its investment objectives or avoid substantial losses. There can be no assurance that the trends described herein will continue or not reverse. Performance data shown represents the performance of an index and not that of the Strategy. NFI-ODCE quotes returns including leverage and fund expenses but excluding management and advisory fees. Returns net of management and advisory fees would be materially lower. It is not possible to invest in an index.
Net operating income (“NOI”) reflects Green Street Advisors data, as of December 31, 2023. 2023 NOI growth represents year-end estimate as of April 02, 2024. U.S. CPI reflects Bureau of Labor Statistics data, as of December 31, 2023. NOI growth represents the average NOI growth by year across the equal-weighted average of the asset-weighted average of the multifamily, industrial, mall, office and shopping center sectors. Multifamily refers to apartment; shopping center refers to strip retail. The Consumer Price Index (CPI) measures changes in the prices paid by urban consumers for a representative basket of goods and services. NOI may not be correlated to or continue to keep pace with inflation.
Past performance does not predict future returns. Morningstar Direct, Bloomberg, NCREIF, 20-year period ending December 31, 2023. Represents Blackstone’s view of the current market environment as of the date appearing in this material only. Diversification does not assure a profit or protect against a loss in a declining market. Indices are meant to illustrate general market performance. Comparisons shown are for informational purposes only, do not represent specific investments and are not a portfolio allocation recommendation. Correlation measures how one investment performs in relation to another, with a coefficient of +1 being a perfect, positive correlation and a coefficient of -1 being a perfect, negative correlation. When two asset classes have a correlation of +1, they will both move up or down by the same amount in the same direction. Conversely, a correlation of -1 indicates that when one asset class moves up or down, the other moves in the opposite direction by the same amount. In general, asset classes with a correlation of less than 0.70 or greater than -0.70 are considered to have relatively low correlation. Private Real Estate is represented by the NFI-ODCE Index. Global Equities are represented by the MSCI ACWI Index, including dividends. Global Investment Grade Bonds are represented by the Bloomberg Global Aggregate Bond Index. Global Public REITs are represented by the MSCI World Real Estate Index. 
Alternative investments involves a high degree of risk and invests may not get back the amount originally invested.
Past performance does not predict future returns. Morningstar Direct, Bloomberg, NCREIF, as of December 31, 2023. Represents Blackstone’s view of the current market environment as of the date appearing in this material only. There can be no assurance that any Blackstone fund or investment will be able to implement its investment strategy, achieve its investment objectives or avoid substantial losses. Indices are meant to illustrate general market performance. Comparisons shown are for informational purposes only, do not represent specific investments and are not a portfolio allocation recommendation. An investment in a yield-oriented US Core+ Strategy for Income-focused individual investors (the “Strategy”) has material differences from a direct investment in real estate, including related to fees and expenses, liquidity and tax treatment. The Strategy’s share price is subject to less volatility because its per share NAV is based on the value of real estate assets it owns (which may fluctuate and may be worth less than initial price) and is not subject to mark et pricing forces as is the price of the indices presented. The Strategy shares are significantly less liquid than public REITs and may fluctuate. US Private Real Est ate is represented by the NFI-ODCE and reflects total returns excluding management and advisory fees. Global Public REITs are represented by the MSCI World Real Estate Index. US Equities are represented by the S&P 500 Index, including dividends. Global Equities are represented by the MSCI ACWI Index. US Investment Grade Bonds are represented by the Bloomberg U.S. Aggregate Bond Index. Global Investment Grade Bonds are represented by the Bloomberg Global Aggregate Bond Index.
U.S. Census Bureau, as of December 31, 2023. E-commerce growth represented by the increase in e-commerce sales from the year ended December 31, 2015 to the trailing one-year period ended December 31, 2023.
World’s largest owner of commercial real estate based on estimated market value per Real Capital Analytics as of March 31, 2024.
Green Street Advisors, as of December 31, 2023. Based on the Green Street Commercial Property Price Index, which captures the prices at which U.S. commercial real estate transactions are currently being negotiated and contracted. Reflects percent change by property sector from January 1, 2008 to December 31, 2023. Shopping center refers to strip centers, and hospitality refers to lodging.
International Data Corporation (IDC), as of December 31, 2021. 2021-2024 represent year-end estimates. There is no guarantee that the trends depicted herein will continue or will not reverse.