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Blackstone's Gray Says 'Office Has Bottomed,' Eyes 1.5M SF Manhattan Tower

Blackstone surprised analysts Thursday, both because it beat expectations in its fourth-quarter earnings and because the private equity giant is looking for opportunities in office space. 

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Blackstone Chief Operating Officer Jon Gray said office values have fallen between 50% and 70%.

The strong earnings were bolstered by fees from the firm's management and advisory services. Its flagship real estate funds were down modestly in the fourth quarter, but Chief Operating Officer Jon Gray said office valuations had reached their floors and the sector was looking increasingly attractive.

“Office has bottomed, particularly in stronger markets and better-quality buildings,” Gray told Bloomberg before Blackstone’s earnings call Thursday. 

After falling between 50% and 70% in value, Gray told the publication the asset class was now underpriced. 

The dislocation has brought Blackstone, which grew its fee-earning assets under management by $10B in Q4 to $830.7B, to the market in search of acquisitions.

“We would be willing to buy properties out there,” Gray said.

It’s nearing an agreement to purchase a large stake in the 1.9M SF office at 1345 Avenue of the Americas in New York, Reuters also reported Thursday, citing two people familiar with the deal. A purchase price hasn’t been disclosed, but the 50-story tower saw its value plunge by more than $300M to $896M in a recent appraisal, according to Bloomberg. 

The potential move back into the office market is something of a pivot for Blackstone. In March, the firm’s new global co-heads of real estate, Nadeem Meghji and Kathleen McCarthy, told Bisnow that it was focusing on data centers, logistics, student housing, hospitality and rental housing as acquisition targets.

Blackstone’s bet on data centers — the firm’s portfolio includes roughly $70B in data centers with another $100B of prospective developments — helped mitigate losses in other real estate sectors during the fourth quarter. 

But analysts pressed Gray on the investments in light of news that Chinese startup DeepSeek has developed artificial intelligence models that require significantly less computing power than those developed by U.S. tech firms with comparable performance. 

The unveiling of DeepSeek this week roiled markets, hitting tech and data center stocks particularly hard. But Gray defended the investments, saying cheaper AI models would only make the technology a more attractive tool.

“DeepSeek says to me the cost of compute is going to come down a lot,” he told Bloomberg. “Therefore the usage of AI and adoption will go up.”

Blackstone’s core real estate fund slipped 0.8% in Q4 while its opportunistic fund fell by 5.1%. Its other business lines, including its private equity, credit and multiasset investing segments, saw growth rates ranging from 2.4% to 4.9%.

The investment fund saw a 14% year-over-year increase in management and advisory fees. It has $169B in undrawn capital available to deploy into new investments.

Its stock was down more than 3% in early trading Thursday despite the earnings beat. 

"Blackstone reported one of the best quarters in our history," Chairman and CEO Stephen Schwarzman said in a statement. "Earnings growth accelerated sharply, while the key drivers of our business – inflows, investment activity and realizations – all reached their highest levels in two-and-a-half years."

CORRECTION, JAN. 31, 4 P.M. ET: Blackstone is nearing a deal to buy a stake in 1345 Avenue of the Americas, not the entire building.