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Blackstone’s $68bn flagship property fund has gone from being one of the world’s biggest buyers of property to a large seller, as it raises liquidity to meet redemptions and invest billions in data centres to feed the artificial intelligence boom.
From the beginning of 2021 to the third quarter of last year, the Blackstone Real Estate Income Trust, or Breit, acquired roughly $60bn of property, including hotels, warehouses and self-storage facilities, according to a Financial Times analysis of Blackstone’s securities filings. The wave of dealmaking included taking four publicly listed real estate investment trusts private.
But since the autumn of last year, Breit has made no large purchases and instead sold more than $10bn in assets to crystallise gains on successful investments and raise liquidity.
The sales were at 4 per cent above the values for which Breit holds the properties on its balance sheet and created about $2.5bn in investment gains. They have helped Breit return more than $8bn to investors since November of last year, when the fund limited withdrawals amid a wave of requests among investors to pull cash.
Large asset sales late last year, such as Breit’s disposal of a 49 per cent stake in two Las Vegas casinos for $2.8bn, created liquidity to handle surging redemption requests.
“With approximately $10bn in immediate liquidity, Breit has significant financial flexibility,” Blackstone said in a statement to the FT. Last month, investors sought to redeem $3.8bn from Breit, a 30 per cent decline from January.
Disposals in recent months, like the $800mn sale of a resort in Texas and a $2.2bn sale of a portfolio of self-storage properties announced earlier this month, come as Blackstone is raising cash to prepare for what it believes is a “once in a generation” opportunity to build properties to handle rising computing demand from a boom in artificial intelligence.
Blackstone has committed to spend more than $8bn to build new data centres for several large scale technology companies, according to two sources familiar with the matter.
The investment push is coming from Blackstone’s ownership of QTS Realty Trust, a real estate trust focused on data centres, which it acquired for more than $10bn in mid-2021.
Blackstone has earmarked properties built to handle rising data needs from a surge in AI investment as a priority across the $1tn in assets group.
Large technology companies like Microsoft, Google, Meta and Amazon will need to invest about $1tn in future years to build the digital infrastructure to handle the soaring computing demand from artificial intelligence technologies, according to independent research firm Dell’Oro Group.
Blackstone has spent more than $1bn in recent years to buy land to build new data centres in five states across the US, according to two sources familiar with the matter. It has also contracted power from large local utilities in order to handle the heavy energy needs of the properties it is planning to build.
The data centres Blackstone is preparing to construct can cost upwards of $1bn per property given the size and complexity of the projects, said the sources.
The group’s investment in QTS was split between Breit, its property fund targeting wealthy investors, a similar fund designed for large institutions, and its infrastructure fund.
Since Blackstone acquired QTS, its leased space has tripled and Blackstone is preparing to further double its size with the new investment. QTS’s valuation has soared to about $20bn, according to sources familiar with the matter, double what Blackstone paid.
Some top Blackstone officials believe the investment could become its single most profitable real estate investment.
“Large technology companies are in the midst of an AI arms race which we believe will be a once-in-a-generation engine for future growth in data centres and is driving tremendous demand on the ground,” Breit recently told its investors.