Blackstone holds $4bn first close for Fund VII

The New York firm has taken just four months to raise more than a third of its $10 billion target for the incoming real estate opportunity fund. Separately, it also is in talks with Bank of America Merrill Lynch to buy the remaining real estate from its global real estate principal investments platform.

The Blackstone Group has brought fundraising for its latest global real estate opportunity fund, Blackstone Real Estate Partners (BREP) VII, past the $4 billion mark.

Blackstone revealed plans for the fund as it presented its first quarter earnings report in April, stating it would target an equity raise similar to the previous fund in its opportunistic series, Blackstone Real Estate Partners VI, which closed on $10.9 billion in February 2007. At that point, BREP VI was 82 percent invested, but it has since come close to being fully invested following large outlays including the $9.4 billion capture of Sydney-based Centro Property Group’s US properties in March and the A$806 million (€601.7 million; $1.06 billion) purchase of European- and Australia-focused investment manager Valad Property Group, which was approved by shareholders earlier this month.

Despite Blackstone president and chief operating officer Tony James describing the current fundraising market as tougher than previous cycles, it would appear the firm has had little difficulty clocking up commitments for its incoming fund, particularly from US pension funds. In July, the New Jersey Division of Investment resolved to commit $300 million, and the Pennsylvania Public School Employees’ Retirement System (PSERS) added a further $300 million in June.

According to PSERS documents, BREP VII has a target of $10 billion but no hard cap, meaning it could grow to a larger size should their be the appetite among from the investor community. The fund is predominantly focused on opportunities in the US and Canada across “a broad range of real estate and real estate-related investments.” It will focus on “acquiring high-quality assets by targeting large, complicated situations where competition is limited,” the documents said. PSERS highlighted Blackstone’s preference for distressed and undermanaged assets that could trade below market pricing levels and which the firm intends to reposition and sell at higher values.

Blackstone, which is employing its placement agent Park Hill Real Estate Group to assist its fundraising efforts, currently is producing positive returns for recent vintages, whereas some of its rivals are in the negative zone. The PSERS documents reveal that BREP VI is currently reflecting an 8.3 percent IRR, similar to the BREP V fund. Vintages prior to that are producing or have produced returns between 39.7 percent and 15.8 percent.

Meanwhile, Blackstone also is in talks to acquire the remaining real estate holdings of Bank of America Merrill Lynch’s global real estate principal investments. That includes the bank’s positions in the Bosphoros Real Estate Fund and the Peakside Real Estate Fund 1 – two vehicles now under the management of Peakside Capital, which was formed following a management buyout by the platform’s European team. It also includes various equity stakes in properties in the US and Latin America. According to a report by the Financial Times, a sale could reflect a value of up to $1 billion. A deal would follow the firm’s appointment as GP and fund manager of the bank’s $2.65 billion Asian opportunity real estate fund late last year.