So a bunch of the deals you saw on private equity, we’ve been working on for some time, but the path of travel here is sort of up and to the right in terms of deal activity. Putting an exact number, I think, is just tough.
Operator: We’ll take our next question from Crispin Love with Piper Sandler.
Crispin Love: Can you just give us your views on the apartment sector right now? You made a pretty good sized deal in the space last week. So curious on your views on that deal and just apartments in general as we head into 2024 and how that staff ranks against the other sectors you’re most active in in real estate and if you could see additional activity in that space.
Stephen Schwarzman: A couple of things here. There’s a transaction we announced last week included an apartment component, but that was mostly in Canadian apartments. The vast majority of the company focused on single family for rent. That space because of the shortage of single family homes has been much stronger. In the multifamily space, as we’ve noted here, what we’ve seen is a surge of new supply that was put in place during the low rate period when values had moved up a lot. And that’s going to take probably 12 months, maybe a little longer to work through. Right now, rents have moved down to a level where they’re pretty flat. In some cases, modestly negative. And as I said, that’ll take some time. The good news is multifamily construction is now down about a third.
And so, once you sort of work through this, we should be in a much better place. And the overall backdrop is one of a housing shortage in the United States. So, single family, stronger near term. Multifamily, definitely a little bit weaker. But in overall constructive housing environment in terms of our investment activity, it’s possible you could see us invest into the weakness and multifamily because we’ve got a long term constructive view, even if there are some near term headwinds.
Operator: We’ll go next to Michael Cyprys with Morgan Stanley.
Michael Cyprys: I wanted to ask about the commercial real estate lending platform that you have from BXMT, the BREDS and the institutional SMAs. I was hoping you could talk a bit about how you’re broadening out the platform and the capabilities and how big of an opportunity set do you see given certain end market pressures as well as certain constraints facing US banks and other existing CRE investors?
Stephen Schwarzman: Well, we definitely think it’s a good time to be a commercial mortgage real estate lender because the sentiment is so poor. And to your point, Michael, capital has pulled back. Banks are trying to reduce exposure. Our business today, I think, is a little over $70 billion in that space. And the nice thing about the capital we have is it really runs the gamut. We have our BREDS funds, which are more high yield in nature. We’re raising the fifth vintage of that. We do a transition of mortgages in Blackstone Mortgage Trust. Then we have our insurance clients who want to do more stabilized real estate. And then we also have, for the insurance clients and other clients, what we do in the CMBS market around liquid securities and real estate debt.
And we think this is a sector that has really lagged. If you look at spreads, they’re pretty wide by historic standards. Loan to values have fallen. It’s the natural thing that happens after a downturn. And so, I think this is an area that can continue to grow at a pretty good clip, just because I think you can earn very attractive returns relative to the risk. And just like, on the equity side, this is an area we’re going to be leaning into as we move into this year.
Crispin Love: We’ll go next to Finian O’Shea with Wells Fargo Securities.
Finian O’Shea: Michael, appreciate your color on the flagship and management fees. Can you touch on if there’s perhaps more of a headwind to come in terms of step downs or otherwise as you go through the flagship holiday periods or if it should be more of a smooth journey from here, given of course stable to improving deployment over the course of this year?
Michael Chae: As we outlined, this year, as opposed to last year where I think in the second half of the year, there was more of a sort of an absence of significant flagships lighting, Europe being an exception late in the year. But there will be a series of activity we anticipate throughout the year. I mentioned sort of the multiple funds that fit in that category. Almost all of them, as you alluded to, have a three or four month fee holiday. So we’ll be sort of seeing that unfold in the course of the next few quarters. And you will see, all else equal, because of the fee holiday, some marginal pressure on that. But I think when we look at the overall growth rate and how that will layer in, we see an embedded upward ramp on management fees, although it will accelerate later in the year as opposed to earlier.
Operator: We’ll go next to Alex Blostein with Goldman Sachs.
Alex Blostein: Another one on real estate and maybe zoning in on core real estate for a second. And obviously, lower interest rates should be really helpful to maybe reigniting some of the investor demand for that part of the market. But how are you thinking about both institutional and retail appetite for core real estate from here, whether it’s BPP or BREIT? And what is sort of the level of interest rates we need to see where those products become compelling, again, from an investor allocation perspective?
Stephen Schwarzman: Alex, I don’t know if it’s necessarily exactly a certain level. I think it’s about momentum. As you know, after investors have taken losses, even if they’re modest losses, there tends to be caution. Real estate because of the lag, and when challenges materialize, will have a number of negative headlines coming out over the course of the year. And so, what happens is, I think investors tend to take their time in terms of pivoting back to the space. That’s certainly what happened in the early 90s. That’s what happened in 208, 2009. And so, there’s caution. So, you don’t see huge sort of surge of capital flowing in on a dime. What happens is, as the recovery, first you get this sort of bottoming effect, then you start to get some growth in values, and then the consensus starts to change.
What happens in this period of time is you tend to get, I think, the greatest opportunities for investing because you can see the light at the end of the tunnel, but capital hasn’t flown into this space. And then, over time, as results get better, there’s limited new supply, rates have come back down, then people start to go back in because they feel like it’s safe to do. So, I think the short answer is that will take a bit of time on both the institutional and the individual investor side, but it’s tied to performance. And it will take multiple quarters of strong performance where people say, hey, I’m comfortable doing this. In the meantime, we should be looking to take advantage of this lack of confidence in the marketplace.
Operator: We’ll go next to Brian Bedell with Deutsche Bank.
Brian Bedell: A question for Michael and maybe Jon as well. Just, Michael, in talking about the pace of the activations of the funds, just wanted to get your sense of the confidence of growing the fee-related revenue, not including fee-related performance fees as the base revenue, say, at a double digit pace in 2024? And it sounds like that pace will, for calendar 2025, would actually accelerate based on the timing of the activations throughout the year. And then, if you can also comment on your view on FRE margin for 2024. Excluding the impact of fee-related performance fees, I know that that can create noise, but just maybe competence in scaling the business to have FRE margin expansion in 2024.
