Real estate investments at private equity house The Blackstone Group (BX) swung to a loss of $65.7 million for the third quarter, down from income of $453.5 million for the second quarter. Blackstone said real estate performance fees were negative lost $114.8 million for the third quarter, down from fee income of $450.2 million for the second quarter. There is speculation Blackstone is looking to acquire the real estate division of Merrill Lynch off the hands of Bank of America (BAC). However, Blackstone's "dry powder" strategy — hording of unrestricted capital — is up to its highest level so far at $33.4 billion, some $10 billion of which is committed to future real estate investments. "The decrease in performance fees and investment income was primarily related to the decline in the public markets, which impacted the segment’s public stock holdings and certain hospitality investments along with the negative impact of foreign exchange," the company said. Offsetting factors include an 11% yearly rise in rents at Blackstone commercial properties and an 8% rise in retail sales at its mall investments. Leasing activity at its grocery centers increased 40% from 2010. CEO Stephen Schwarzman noted that investor confidence in Blackstone remains solid, despite the third-quarter loss of $275 million compared to a $44 million loss a year ago. "We reported net inflows in all of our businesses and grew fee-earning assets under management to a firm record $133 billion, up nearly 30% year over year," he said. "During the quarter we capitalized on the significant dislocation in the market and invested $4.8 billion in total capital, our highest level of investment activity since 2007, sowing the seeds for strong future returns." Write to Jacob Gaffney. Follow him on Twitter @jacobgaffney.