Blackstone is the latest victim of the weakening commercial real estate market

New York (CNN) The ongoing slowdown in the commercial real estate market has a new victim: Blackstone, the world’s largest commercial real estate owner. The company saw its distributable earnings — the earnings that are paid out to shareholders after expenses are deducted — plunge 36% from last year. That’s causing a stir on Wall Street as investors assess the fallout from last month’s regional banking crisis.

Blackrock’s decline was due to an impairment of its real estate investments. Distributable earnings from the company’s real estate segment are down 58% since last year. Gains on sales fell 54% to $4.4 billion, compared to $9.5 billion last year based on total commercial property sales. But that number reflects fewer assets sold, not necessarily lower prices, a Blackstone spokesman told CNN.

After decades of thriving growth fueled by low interest rates and easy credit, the $20 trillion commercial real estate industry has seems to have hit a wall. Office and retail property valuations have fallen since the pandemic has led to lower occupancy rates and changes in how people work and shop. The Federal Reserve’s efforts to combat inflation by raising interest rates have also hurt the credit-dependent industry.

The recent bank stress has exacerbated these problems. Lending to commercial real estate developers and managers has largely come from small and mid-sized banks, which have faced the heaviest liquidity pressures. Around 80% of all bank loans for commercial real estate come from regional banks, according to economists at Goldman Sachs.

Recently, short sellers have stepped up their bets against commercial landlords, suggesting they believe the market will continue to fall as regional banks restrict access to credit. According to S&P Global, real estate is the most short-selling industry worldwide and the third most short-selling in the United States.

Still, CEO Stephen Schwarzman said on a conference call Thursday morning that Blackstone is ready to weather “adverse market conditions.”

Blackstone President Jonathan Gray emphasized on Thursday’s conference call that the company has diversified its investments, with office properties accounting for just 2% of its holdings. That’s down from 61% in 2007.

Gray told Bloomberg Thursday that the collapses of Silicon Valley Bank and Signature Bank and the turmoil in the industry have created opportunities for Blackstone. The company, he said, has been speaking to smaller banks to help their customers get credit if they’re trying to trim their credit scores.

The banking crisis, he said, and subsequent banks’ withdrawal from easy lending policies could create a “golden moment” for credit and give Blackstone more opportunities to provide financing, he said.