In the wake of a mixed Q4 earnings report, Jon Gray, Blackstone (NYSE:BX) president and COO, said Thursday that headwinds from higher interest rates led to a “challenging” quarter for segments of the real estate sector.

However, Gray told CNBC that longer-term, the higher cost of capital would limit the amount of new supply that can come on the market. “That’s a tailwind for real estate,” he said.

“We have been adjusting that [higher interest rates] in our portfolio with higher cap rates. But then when you look within asset classes, it’s really dramatic. The differences if you look in the U.S. office market, they can see including subleasing is today now north of 20% and rents are going down, and that’s a very challenged sector,” Gray added.

Given the difficult market conditions in 2022, the company deployed most of its capital in travel and travel related businesses, logistics, its hedge fund operations, quant and macro investments, energy and energy transition, Gray reported.

In its results, the company’s earnings grew 8% in Q4, with assets under management up 11%. Segment performance: Real Estate – Opportunistic -2.0%; Core -1.5%; Private Equity – Corporate Private Equity +3.8%; Tactical Opportunities +0.6%; Secondaries -1.8%; Hedge Fund Solutions – +2.1%; Credit & Insurance – Private Credit +2.4%; Liquid Credit +3.0%.

However, the alternative asset manager fell short of its expectation to achieve $1T AUM by the end of 2022. It reported AUM of $975B, up from $951B in the prior quarter.

Looking at the stock movement, BX was trading at $92.49 in Thursday’s intraday action, rising more than 4% on its earnings report.

Looking longer-term, shares have lost around 17.3% during the past 12 months, although they have bounced back with 21% gains so far in 2023.

Meanwhile, see why Seeking Alpha contributor Samuel Smith says, “Investors will generally be driven away from (and valuations will decline in) BX’s real estate and private equity products as interest rates rise.”

A quick comparison of BX with broader market index: