Alternatives have seen the real estate space outperform private market holdings and corporate credit investments over the past couple of years. Alternative asset managers (XLF) have posted real estate portfolio appreciations in the range of 3%–5% over the past few quarters, mainly due to improving fundamentals and rising wage incomes.
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Among alternative managers, Blackstone (BX) has been a consistent outperformer in the real estate space, mainly due to high liquidity, a strong network, and access to global markets. The company posted an 85% rise in total revenues to $669.5 million for the real estate division compared to $361.3 million in the previous year. The division’s opportunistic funds’ carrying value appreciated 4.6% in 4Q16, and the core fund’s carrying value appreciated 2.0% due to gains in commercial and residential holdings.
The Carlyle Group (CG) also has exposure in the real estate space. The company registered a 3% rise in its portfolio valuations in 4Q16 as compared to 3% in the previous quarter. Its real assets division includes real estate, natural resources, and legacy energy. The company saw a strong performance from its US real estate fund. It could see stable to higher returns in 2017 as the broader economy improves and wage income rises in and outside of the US.
On the other hand, KKR (KKR) invests in real estate through Real Estate Partners Americas and Real Estate Partners Europe. On December 31, 2016, the company’s real estate holdings formed 11% of its total portfolio, which was in line with the previous quarter.
Apollo Global Management (APO) also saw growth in its real estate holdings in 2016. The company saw an appreciation of 16.3% during the year, reflecting higher-than-average returns.
In the next part of the series, we’ll study how oil prices could affect alternative asset managers in 2017.