Blackstone eyes another $10bn real estate fundraise

The Blackstone Group will start fundraising for its next global opportunity fund this year, with expectations the real estate vehicle could target more than $10 billion in capital.

Reporting a 69 percent increase in its real estate fund valuations over the past year, the New York-based firm said it was 70 percent invested in the $10.9 billion fund, Blackstone Real Estate Partners (BREP) VI, with expectations the 2008 vintage vehicle would be fully invested within “a deal or two”.

Tony James, Blackstone president

As a result, Blackstone president and chief operating officer Tony James said the firm would start fundraising for BREP VII, targeting a similar equity haul to its predecessor fund. “Our target would be to do something similar. It’s a tough fundraising environment so there will be some investors clearly not able to do the size [they were] once able to do,” James said on an earnings call with investors Thursday. However, he added that despite the work involved, “[we’re] hopeful to come in close to that same size”.

James said any fundraise for BREP VII would “certainly take us into next year”.

Blackstone had $9.1 billion of real estate dry powder as of the end of 2010, according to its fourth quarter and annual earnings report, having called $4.1 billion of LP capital and invested $5 billion of capital – an almost 80 percent increase on 2009 equity deployment levels, most of which came in the final quarter of the year.

The firm’s real estate portfolio rose in value 69 percent during 2010 and 19 percent in the last three months of the year. James said the entire portfolio was being carried at 1.4x investors’ original investment.

Most of BREP VI was invested in the US, James explained, primarily on restructuring and recapitalisation deals such as Extended Stay, General Growth Properties and the acquisition of 180 properties from Denver-based industrial developer-cum-fund manager ProLogis.

Blackstone invested $526 million of BREP VI in the Extended Stay hotel deal, which saw the firm partner with Centerbridge Partners and Paulson & Co to bring the group out of bankruptcy protection, sources have previously told PERE. Blackstone also invested $92 million in senior and junior mezzanine pieces of Extended Stay's securitised debt through its special situations vehicles. For the Brookfield Asset Management-led recapitalisation of GGP, Blackstone invested $481 million of BREP VI equity, securities filings revealed.

James said on the earnings call that the firm’s Asia real estate activities had concentrated around development deals, while Europe was expected to feature more prominently in Blackstone’s pipeline in 2011. “In Europe, creditors are much … less transparent and a lot slower to deal with the credit problems in real estate. It’s just about to break open and become more active, but so far [Blackstone’s deal flow] is primarily US orientated,” James said.

The firm reported fee-earning real estate assets under management of $26.8 billion as of the end of 2010, compared to $23.7 billion in 2009, in part due to increasing AUM in its real estate debt fund and the acquisition of Bank of America Merrill Lynch’s $2.1 billion Asia platform and funds.