The Blackstone Group officially has announced it has started fundraising for its next global real estate fund, with expectations the firm will target around $10 billion.
The New York-based private equity and real estate shop revealed in its first quarter earnings report that the $10.9 billion Blackstone Real Estate Partners (BREP) VI fund was now 82 percent invested prompting it to “commence fundraising for its next major real estate fund”, believed to be BREP VII.
Chief executive officer Stephen Schwarzman said on the earnings call that he expected to hold an initial close “later this year,” arguing that he saw “no reason why it shouldn’t be comparable in size” to BREP VI.
Earlier this year, Blackstone president and chief operating officer Tony James said the firm was within a “deal or two” of fully investing BREP VI and that the fundraising effort for the next global property fund would launch this year. Echoing Schwarzman’s thoughts that the vehicle would reach a similar target to its predecessor fund, James said at the time that “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.”
Blackstone’s 58 percent increase in profit in the year to the end of March 2011 was fuelled by gains in its real estate and private equity portfolios. The firm’s real estate funds rose in value 8.7 percent during the first quarter, against private equity’s 4.9 percent, while the firm’s real estate debt hedge fund increased 4.5 percent during the same period. The real estate group generated profits of $361 million for the first quarter, compared to $89.3 million for the same period in 2010.
Overall, the firm has seen its assets under management rise to $150 billion, a 43 percent increase in the past year alone. That AUM growth has come on the back of an active year for the firm’s real estate and private equity divisions. In one of its latest real estate deals, Blackstone closed the $9.4 billion acquisition of the US assets of troubled Australian shopping centre company, Centro Properties Group, in March. That deal saw Blackstone make a multi-billion dollar equity investment, according to people familiar with the matter.
However, despite being one of the active investors in real estate, Blackstone still has $8.6 billion of real estate dry powder to play with, the firm said on the earnings call.
After closing on $10.9 billion of equity and starting to invest in February 2007, BREP VI has invested in a range of large deals, with a chunk of the fund’s capital deployed on partial interests in two of Blackstone’s largest property transactions ever, the $39 billion Equity Office Properties acquisition and the $26 billion privatisation of Hilton Hotels. BREP VI is understood to have invested approximately $1.5 billion of the total $3.3 billion of equity committed to the Equity Office deal, alongside BREP V, according to fund documents from high-net-worth advisory firm Lane Financial. A similar situation occurred with the Hilton Hotels transaction, with Blackstone splitting the $3.7 billion equity investment in the hotel group across BREP V, BREP VI and BREP International II, according to SEC filings.
Other deals include the £1.07 billion (€1.23 billion; $1.75 billion) investment to acquire a 50 percent interest in British Land’s Broadgate complex in London (ultimately split between BREP VI and Blackstone Real Estate Partners Europe III); an interest in the $2.7 billion deal to buy Anheuser-Busch InBev’s 10 Busch Gardens theme parks; the $3.9 billion recapitalisation of bankrupt hotel chain Extended Stay along with Centerbridge Properties and Paulson & Co., in which BREP VI invested $556 million; a $500 million equity investment in the Brookfield Asset Management-led recapitalisation of retail REIT General Growth Properties; and the $1.15 billion venture with Emeritus Senior Living and Columbia Pacific Advisors to acquire 134 senior housing facilities from bankrupt operator Sunwest Enterprise.