Blackstone aims to double core-plus AUM

The New York-based asset manager has set plans to increase its global core-plus AUM from $32bn to $60bn within the next two to three years.

Blackstone focused on scale during its investor day Friday, announcing plans to double its real estate global core-plus assets under management within the next two to three years.

The New York-based asset manager intends to increase global core-plus AUM to $60 billion from the $32 billion it reported for the second quarter of 2018. If the firm manages to reach its goal, it will be on track to fulfill chief executive Stephen Schwarzman’s vision of a $100 billion core-plus portfolio. He announced the $100 billion goal in 2014 during a conference call and set a timeline of 10 years. For his vision to come to fruition, Blackstone will have to increase core-plus AUM by another $40 billion within the three years from 2021 to 2024.

Blackstone global co-head of real estate Kenneth Caplan attributed the $60 billion benchmark to the pace of investing and capital raising that the core-plus business has seen. Along with rapid AUM growth, he also anticipates that core-plus cash revenue will quadruple in two to three years to approximately $1 billion from the $259 million reported for the second quarter of the year.

“This outsize revenue growth is not just from AUM growth but it’s also a result of how young this business is,” Caplan said during the investor day presentation.

He also noted that revenue will grow rapidly once the recurring performance revenues kick in as there is a delay from when the capital is initially raised. He estimates 75 percent of the projected $1 billion that the firm expects to hit in two to three years has already been raised and invested.

Blackstone’s goal to push AUM growth serves to promote its view that size and scale is what sets the firm apart from its peers and gives it a market advantage.

“Scale is one of our greatest strengths,” said Kathleen McCarthy, Blackstone global co-head of real estate. “It’s the envy of the industry. Our niche is our size.”

From the $26 billion Hilton Hotels buyout in 2007 to the $7.6 billion purchase of Gramercy Property Trust in June, few others have the capital on hand to close such deals. Scale means Blackstone can do business in less crowded spaces in which there are fewer bidders for an asset, McCarthy said. Similarly, Blackstone president and chief operating officer Jon Gray noted that the firm’s ability to deploy large amounts of capital is part of its “powerful business model.”

The firm continues to be most attracted to assets where the team can improve operations and make physical renovations. By acquiring and improving a property, Blackstone can attract tenants with quality space and lower rents than a ground-up development. Taking note of the late real estate cycle, McCarthy said the team sees strength in the hospitality industry. Consumers today are more mobile and less interested in physical goods, she noted, and these trends can drive growth in the hospitality industry. Supply-constrained markets like the West Coast and Hawaii are particularly attractive, she added.

Recently, Blackstone attempted to buy real estate investment trust LaSalle Hotel Properties for $4.8 billion in an all-cash deal. The two parties reached an agreement in late May, despite the three separate bids made by REIT Pebblebrook Hotel Trust. However, when the hotel REIT bumped up its bid to $5.2 billion, including debt, LaSalle shareholders terminated the previously established deal with Blackstone. The new merger between LaSalle and Pebblebrook is anticipated to close during the fourth quarter of 2018.