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Blackstone eyes $4bn third real estate debt fund

The fund is expected to largely follow the same strategy as its predecessor but will be open to investing in more geographies.

Blackstone is to kick-off capital raising for its next BREDS global private real estate debt fund, PERE’s sister publication Real Estate Capital can reveal.

The new vehicle, number 3 in the Blackstone Real Estate Debt Strategies fund series, comes as the $4 billion Fund II is all but fully invested. It is thought that BREDS has prepared to start formal marketing of Fund III, seeking a similar amount of capital.

BREDS II reached a first closing in April 2013 and at final close had $3.3 billion of commitments plus two separate accounts taking its firepower to $4 billion. It invests in high-yielding secured loans in the US and Europe, targeting 12-13 percent returns, through making mezzanine loans, whole loans and selling down the senior, and financing transitional assets.

BREDS declined to comment on future fund raising. However, Rob Harper, BREDS’ head of Europe, said Blackstone’s future real estate lending strategies would not change but that its remit will widen to more geographies.

Harper said that Blackstone’s acquisition of over $9bn of GE Capital Real Estate loans in the summer was “transformational for the debt business” bringing not just deeper penetration in the US but access to new markets. “We hired people in Australia, Mexico and Canada. Now we have more markets to go hunting in”, he said.

Harper added that BREDS has made a key hire in Asia, recruiting Raymond Chan who was previously with Mount Kellett. Thus BREDS III will have a wider, global investing mandate.

In addition to the private BREDS funds, the Blackstone debt business also manages public mortgage REIT Blackstone Mortgage Trust (BXMT) which invests in senior loans.

BXMT makes fixed rate and floating loans while the private funds are primarily a floating-rate lender “because when you lend into transitional assets, the borrower wants the option to either sell or refinance once they have elevated cash flow”, BREDS head and senior managing director Mike Nash told Real Estate Capital last year.

BREDS has been very active on behalf of BXMT in both the US and Europe this year: recent US deals include backing the acquisition of the Hyatt Regency Hotel in Bethesda Maryland and refinancing part of New York’s iconic Woolworth Building, providing $320m. In the UK BMXT just closed a £367m seven-year fixed rate loan alongside Rothesay Life for Secure Income REIT’s long-leased leisure properties.

One of BREDS II’s last large deals was syndicating £250m of senior debt to four parties during H1 2015, after writing a £315 million whole loan for KSL. The US private equity firm, which specializes in hospitality investments, bought De Vere Villages, which has 25 resorts, late last year for £485 million from Lloyds.