BlackRock’s Distressing Real Estate Revenues:
BlackRock’s Management is quite excited about Aladdin Investment Tools, BlackRock Solutions, but it seems to be only mumbling about its alternative investments, which have troublesome real estate portfolio.
Chilton Capital's REIT Composite was up 6.1% last month, compared to the MSCI U.S. REIT Index, which gained 4.4%. Year to date, Chilton is up 6.3% net and 6.5% gross, compared to the index's 8.8% return. The firm met virtually with almost 40 real estate investment trusts last month and released the highlights of those Read More
Recently Robert C. Doll, Chief Equity Strategist for Fundamental Equities at BlackRock, released its predictions for 2012. He expects the USA GDP to grow by 2-2.5% withEuropemoving into recession. The equity expert believes that theUSstocks will outperform other stock markets and will post double digit growth in equity prices. However, the increase in stock prices will be merely because of increasing multiples and expected inflows in the market. Doll, for 2012, expects subdued corporate earnings and results below market expectations. The equity expert commented on equities, economics, interest rates, but the real estate sector remains uncommented.
A closer look into BlackRock’s Alternative Investments Real Estate portfolio (2010):
At the end of 2010, BlackRock’s Alternative Investments Assets under Management (AUM) were recorded at $109.7 billion. Real estate debt and equity products accounted $12.9 billion or 12% of the AUM. The real estate products aim to post high yields debt, and value added opportunistic equity portfolios. During the year, real estate AUM declined by $5.5 billion, mainly on the back of net outflows of $3.3 billion. The remaining decline of $2.2 billion represents erosion due to market turn down.
Real Estate contribution in non controlling interest
After deducting non operating income from net income, non controlling interest shows that in 2008 and 2009, real estate products posted a net loss of $127 million and $114 million, respectively. However, in 2010 positive flows amounting $17 million were recorded.
After recovering from losses in 2010, 2011 again seems to be a heavier year. As per the third quarterly results for the period ended September 30, 2011, real estate estimated economic investments were calculated in the range of 5-10%. Moreover, in third quarter alone, gains from real estate investments declined by $7 million to $4 million levels-a decline of 64%, year over year.
In first nine months (Jan-Sep 2011) net gains from real estate portfolio were recorded at $7 million against $13 million recorded in the same period last year, translating into a decline of 46%.
Black Rock’s acquisition of Helix Financial Group LLC:
On a separate note, to enhance BlackRock Solutions commercial real estate capability, BlackRock acquired Helix Financial Group LLC in early 2010. The acquisition is expected to help BlackRock Solutions in winning multiple fresh high profile assignments.
The management has made few efforts to improve its return from alternative investments portfolio, which may have lead to some improvement, but the efforts are not enough to sustain the tough challenges real estate market demands. Its one of the efforts includes the launch of BlackRock alternative Investors (BAI) to coordinate with its alternative investments efforts, but it seems to be a red tape.
The BlackRock management should move a step forward and see if BlackRock Solutions can help addressing the underlying issues with the real estate investments made by the group.
Disclosure: No position
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