Blackstone has $13bn RE ‘war chest’

The New York-based private equity firm said it is waiting for real estate valuations to decline further before beginning to invest the capital. However, Blackstone’s real estate portfolio has been written down by 10% owing to the market turmoil.

The Blackstone Group has a $13 billion real estate “war chest” to invest in distressed assets and the debt of distressed sellers, president and chief operating officer Tony James said today.

Speaking as the New York-based firm reported a total $509 million loss in the three months to the end of September, James said Blackstone was sitting on around $13 billion of uncommitted capital after deciding to scale back investments over the past 15 months.

However during a conference call with journalists, James said it was “still a little early” to jump into the market, predicting real estate valuations would continue to decline. He said the lack of available credit would force holders of real estate assets – including many REITs – to sell their properties at discounted prices in the near future.

“We expect there to be much better valuations in the future than there are now and that’s pretty much a global view for us,” James added.

The chief operating officer said no specific country had caught the firm’s eye in terms of real estate opportunities, but said the US was expected to be the first region to see valuations stablise and then appreciate, while Asia could be severely impacted owing to oversupply.

Blackstone reported a $273.7 million loss on its real estate portfolio in the third quarter to the end of September – writing down the value of the assets by 10 percent. During the same period in 2007, Blackstone – which went public in June 2007 – made $109.1 million from its real estate investments, compared to a loss of $14.4 million in the second quarter of 2008.

James declined to say which assets had been affected by write-downs other than insisting they were not “significant” and had been primarily “reduced gains”.

He insisted though the current market environment was ideal for investors, saying the best private equity and real estate returns could be gained during “market meltdowns” when asset prices were depressed. “We expect this current market meltdown to be no different,” he added.

During the call, James repeatedly stressed Blackstone’s private equity and real estate funds were closed funds, with LPs locked into the life of the vehicle. He admitted fundraising was difficult for all GPs, as investors struggled with the denominator effect and declining distributions from existing investments. Blackstone, he added, was not expecting to be affected by LP defaults, saying: “We don’t expect anyone having any trouble making their capital calls.”

In a later conference call with analysts, Blackstone’s chief financial officer Laurence Tosi said the firm had completed another closing of its European real estate fund on $4.5 billion (€3.54 billion). The Blackstone Real Estate Partners Europe III fund has a hard cap of €3.5 billion and is expecting to hold a final close in the new year, according to the firm’s managing director Douglas Kirkman recently.