While its property platform has failed to expand over the last five years, BlackRock has set up an ambitious growth plan for the business over the next half-decade. “Fundamentally, BlackRock intends to build a much larger real estate business,” Jim Barry, head of real assets at the New York-based asset management giant, told PERE.
BlackRock Real Estate currently has $24 billion in assets under management, but the plan is to aggressively expand it. “Over the next three to five years, the AUM will be double the business we have today, and then we’ll double it again,” said Barry. “We need to build one of the leading franchises to be relevant.”
“When we look at the next 18 months, the one strategic gap is US value-add commingled funds,” he said, noting the firm has raised and invested capital for US value-add through separate accounts to date. The firm would look to fill the gap either organically or through an acquisition of an existing platform with those strategies. “An acquisition would accelerate our strategy, but it would have to be right one,” he said.
BlackRock is the world’s largest asset manager, with $6.4 trillion in assets, of which its real estate assets represents just 0.35 percent. It has not grown since the company’s acquisition of Singapore-based private equity real estate firm MGPA in October 2013, when combined assets were $23.5 billion. By comparison, Blackstone has the world’s largest private equity real estate business, with $120 billion in real estate, 26 percent of its total $456.7 billion in AUM.
BlackRock’s headcount has shrunken, too: at the time of the MGPA acquisition, the business had more than 400 staff across 18 offices in North America, Asia and Europe. Today, it has some 220 people across 20 offices across the three regions. There has also been notable leadership turnover: in the last two years, chairman Jack Chandler, chief investment officer Simon Treacy and EMEA head Tom Lee have each departed. Last month, PERE reported global real estate head Marcus Sperber will leave next summer, handing over to five business line heads.
BlackRock’s RE AUM
Percentage that RE comprises of firm’s total AUM
Sperber said that growth of the property business should not be measured by AUM alone. “That doesn’t tell the full story. When we bought the business, there was a lot of dispositions needed to take place in terms of Europe Property Fund II and Asia Property Fund III. Not only have we have run off all those assets, in excess of $8 billion on a net basis, but actually what we’ve done is rebuilt with new product.”
Yet follow-on vehicles of existing strategies have generally failed to meet fundraising expectations. They include the 2013-vintage APF IV, which ultimately attracted $500 million of a $1 billion target last year, PERE previously reported; and the 2015-vintage Europe Property IV, which gathered a total of €700 million against a €1 billion equity goal in April 2017, marking the first time BlackRock held a final close for its value-added property funds since acquiring MGPA.
Other follow-on funds were the 2013-vintage BlackRock Carbon Capital V, which collected $430 million against a $750 million target; and its 2016 successor, BlackRock Carbon Capital VI, which has collected $1 billion to date, according to PERE data.
New fund strategies include the open-ended vehicle BlackRock Eurozone Core Property Fund, which was launched this year and is understood to have garnered €400 million to date, and the BlackRock US Real Estate Senior Mezzanine Debt Fund for which BlackRock also is understood to have held a close this year. Another new strategy was the UK Long Lease Property Fund, which was established in 2013, had a net asset value of nearly £1.23 billion ($1.6 billion; €1.39 billion) and was generating a five-year return of 7.7 percent as of March 31, according to the Association of Real Estate Funds.
“Plan A is to drive portfolio growth over the next 18 months,” said Barry. “We’ll also look for new strategies to complement existing strategies to launch over the next two to three years.”
The firm was unable to provide performance data for the funds by press time but Barry said of the existing real estate value-added funds: “AF IV has really outperformed. Certainly, vintage five is imminent in terms of going to market. We expect a substantially larger fund than AF IV.” Likewise, in terms of the firm’s European value-add vehicles, “the performance with vintage 4 has been top class, and the momentum is to raise a substantially larger fifth vintage.”