Blackstone has made its first real estate deal from the fund that makes passive minority investments in alternative asset managers, the firm said on Tuesday.
It bought a 20 percent stake in Rockpoint Group, the Boston-based private equity real estate firm, for an undisclosed amount. The transaction is Blackstone’s sixth manager stake acquisition and its first in real estate from its Blackstone Strategic Capital Holdings, a $3.3 billion fund raised in 2014.
“We think there are few who do it at the caliber they do. It was one of a handful of firms we’d consider.”
– Scott Soussa
The firm has invested in four hedge funds and one private equity firm, Leonard Green. The fund is also set up to invest in infrastructure, but it has not yet made any deals, Scott Soussa, head of Blackstone Alternative Asset Management’s strategic capital group, told PERE.
“We’ll look at anything across the spectrum in alternatives. We’re looking for best-in-class managers in their space and for situations where we can be strategic value-adding partners to their business. That can include helping with marketing and distribution or helping to optimize the partnership structure. It could also be a way of monetizing the next generation of partners to get equity into their hands.”
In Rockpoint’s case, succession planning was not the primary driver. Bill Walton, the older of the firm’s co-founders, has no plans to leave the business, a source said. Rockpoint had received a dozen calls about selling part or all of the business since its foundation in 2003. As the number of real estate managers selling stakes in their firms rose, the management team decided to review its options.
Rockpoint and its advisor, Evercore, looked for a “large, pre-eminent” firm that could help the business strategically and financially.
The bigger firm’s relationships could help Rockpoint as it prepares to fundraise its next round of vehicles and as it considers new products. Last year, the firm closed its latest opportunistic fund, Rockpoint Real Estate Fund V, on $3.3 billion and its most recent core-plus fund, Rockpoint Growth and Income Fund II, on $1.1 billion.
The real estate managers can also tap into Blackstone’s technology and portfolio operations programs.
The capital “will further strengthen our firm while preserving its entrepreneurial culture,” Walton said in a statement. A spokeswoman for Rockpoint declined to comment.
Blackstone, for its part, liked Rockpoint’s track record and relationships.
“We think there are few who do it at the caliber they do,” Soussa said. “It was one of a handful of firms we’d consider.”
While both firms manage core-plus and opportunistic real estate, he said any conflicts of interest are mitigated by strict internal separation between the fund of firms, which sits in Blackstone’s hedge fund platform, and its real estate business.
“We’re making a passive, minority investment that doesn’t have any say or control over their investments. We’re not privy to any investment opportunity that any LP wouldn’t get access to,” Soussa said. “Is there potential competition? Sure but that competition will exist whether or not we own a minority stake in the business.”
A source highlighted the firms’ differing investment approaches: Blackstone, with a $15 billion opportunistic fund, tends to take on much bigger deals than Rockpoint.
Blackstone has not ruled out future real estate manager investments, though the firm is not currently looking for managers.
Funds of firms are collecting more capital than ever, according to PERE’s sister publication, Private Equity International, and some of that money is making its way to real estate. In 2016, Dyal Capital Partners purchased passive, non-voting minority stakes in both HIG Capital, a private equity firm that has real estate funds, and in Starwood Capital Group, PERE reported.
Evercore served as a financial advisor to Rockpoint. Kirkland & Ellis, the legal advisor for Starwood, also advised Blackstone in this deal, while Simpson Thacher served as legal counsel to Rockpoint.