Blackstone invests $1.1bn in real estate in Q1

After almost two years sitting on the sidelines, the New York-based real estate firm is ramping up activity, primarily targeting debt-related deals. It comes as the firm reportedly asks creditors to restructure almost $5bn of debt remaining on its Equity Office Property deal.

The Blackstone Group pumped $1.1 billion of new equity into real estate deals in the first three months of this year after almost two years largely sat on the sidelines.

The New York-based private equity real estate firm said it was primarily targeting over-leveraged, distressed situations, particularly debt-related deals.

Earlier this month, Blackstone restructured one of its own real estate deals, reducing the Hilton hotel chain’s debt by $4 billion and pushing debt maturities by two years to the end of 2015. Hilton Worldwide said at the time Blackstone had helped the company buy back $1.8 million of debt and convert $2.1 billion of junior mezzanine debt to preferred equity.

Blackstone is also reportedly considering asking creditors to restructure $4.94 billion of debt remaining from its $39 billion take-private of Sam Zell’s Equity Office Properties, according to a Bloomberg report. The report said Blackstone was it would pay down 5 percent of the balance and pay a higher interest rate in return for an extension to its debt, which is set to mature in 2012.

Speaking on an earnings conference call with journalists, James said Blackstone’s private equity and real estate funds had both seen a dramatic swing in values since the first quarter of 2009, with Blackstone’s private equity portfolio increasing in value by 16 percent in the first three months of 2010 and real estate rising by 12 percent.

James also noted that Blackstone’s placement arm, Park Hill, had also seen its revenues triple to $16 million in the first quarter, with the COO telling journalists on the call: “Fundraising has come alive again.”

The fundraising industry was moving from essentially “dead to wounded” and was now on the way to “healthy”, James added. “We are in the middle part of the cycle and I think its certainly much better than a year ago. We are seeing investors committing to alternatives and we are seeing them increase generally their allocations to alternatives.”

LPs though were pressing firms such as Blackstone on terms and fees, not least deal fees. James said the industry had already shifted from a position where sponsors retained all deal fees, to a position where they were now 80-20 in favour of the LPs. He said that would “probably get worse over time”, saying that investors were calling for 100 percent of all deal fees earned.

During a later call with analysts, Blackstone chief executive officer Stephen Schwarzman said the firm would remain a major client of Goldman Sachs and never had reason to question the investment bank's behaviour on any deal it has worked on with them.

The comments follow accusations by the US Securities and Exchange Commission that Goldman defrauded investors in the structuring and marketing of debt instruments secured against subprime mortgages. “We've been working with Goldman Sachs since Blackstone was founded almost 25 years ago and I've been personally working with them for over 40 years, and we've never had any circumstance where there's been any question about their ethical character or their behavior on any transaction we were involved with,” Schwarzman is quoted as saying.