BlackRock’s real estate business has successfully brought its once-troubled Asian fund series back into favor among institutional investors, PERE can reveal.
The New York-headquartered asset management giant is expected to announce imminently it has raised $1.175 billion for the latest vehicle in the value-add strategy fund series. The firm had originally targeted $1 billion for BlackRock Asia Property Fund V.
The fundraising signals a reversal of fortunes for a series once maligned in the private real estate community after its 2007-vintage, $3.9 billion third fund became overly exposed to large office developments in Singapore just before the global financial crisis. That fund required extensions to provide BlackRock time to exit investments, had to retire uninvested capital and was subject to significant secondary trading as some investors sought early exits.
Consequently, Fund IV, which was closed to investors in November 2017, managed to attract just over $500 million of a $1 billion target after three years of fundraising. While that capital raise was challenged by the issues of its global financial crisis vintage predecessor, the current crisis has seen the series get back on track, with Fund V receiving more than $500 million in commitments from investors during a period when much of the institutional world was impeded with travel restrictions and local lockdowns. Prior to the outbreak of the covid-19 pandemic, the firm had raised $500 million in the fund’s first close in January 2020.
John Saunders, head of BlackRock Asia Pacific Real Estate, told PERE: “This has been so pleasing given this capital raising period has coincided with an inability to travel.”
“One predeterminant to the success in fundraising during this period was that we had next to no pre-covid assets,” he added. Indeed, BlackRock was just 3 percent invested before last March, having made a single office investment in Australia. Saunders also said that Fund V’s $500 million first closing gave investors the confidence to invest in the fund.
Fund III produced an internal rate of return of 3.5 percent and 1.2x equity multiple, according to documents from US pension fund New York State Teachers’ Retirement System in June 2016, well off its opportunistic performance targets. Fund IV, however, is understood to be performing in line with its targeted net IRR of between 10 and 15 percent and targeted equity multiple of 1.5x. The vehicle is approximately 40 percent divested, PERE understands.
Saunders declined to comment on the series’ performance, but he said: “Coming out of the GFC, we were tasked to rebuild this fund series. There were changes we made, including the size, and we also tend not to do much development anymore. The longer you have to hold assets, the more you don’t control them. Stylistically, we moved the risk down to be on the conservative end of value-add.”
BlackRock saw a re-upping rate of about 75 percent for Fund V, including certain investors from Fund III and even one investor which has backed the series from its inception in the early 2000s. “The thing I am most happy about here is the significant re-up rate, more than the growth of the fund or its performance. I’m delighted to see this returning client base. The re-up rate is phenomenal.”
Fund V is now 11 percent invested into Australian logistics and Japanese office assets and the vehicle still has three of four years in its investment period to go. Saunders said the firm effectively ceased investing during the second and third quarters of last year as valuing assets proved challenging, but saw the pace of its investment program pick up in the fourth quarter.
The remaining capital is expected to be deployed into both sectors and countries, as well as into Singapore, China, Hong Kong and, selectively, in Korea too. While offices and logistics are expected to account for most of the money, opportunistic hotel purchases could also feature while digital real estate, self-storage and cold storage would be considered as well, should pricing seem favorable.
On the investing strategy generally, Saunders said: “We want a fast turnover of deals. Once we’ve put ‘the fix’ in, we like to bank the returns. We’re happy to leave something on the table for the next guys.”