Three years after the close of its record-breaking global real estate vehicle, Blackstone is readying its next mega-fund in the series.
“We’re going to launch very soon on our latest global real estate fund,” said Blackstone president and chief operating officer Jonathan Gray during the firm’s second-quarter earnings call with media Thursday. “We potentially could have a closing as early as the end of this year.”
Blackstone Real Estate Partners IX is set to launch during the third-quarter and is expected to be at least as large as the previous BREP VIII fund, which attracted a total of $15.8 billion in October 2015 – $14.5 billion of which was raised in a first and final institutional close that March. BREP VIII is the largest closed-end private real estate fund to date.
Although capital has become more challenging to deploy during the late-stage real estate cycle, Gray said the firm has the flexibility to deploy capital over the fund’s five-year investment period, during which the market environment can shift. The firm’s scale and global presence acts as a competitive advantage and allows it to deploy capital in an otherwise difficult real estate investment market, he added.
“We don’t feel pressured to put out the money,” Gray said. “If there’s nothing good to swing at, we’ll keep the bat on our shoulder.”
As of June 30, Blackstone had deployed approximately $8 billion out of the $16.4 billion in capital committed to BREP VIII, with $8.4 billion still available, according to the firm’s second-quarter earnings report.
However, Blackstone chief financial officer Michael Chae said the fund was 60-80 percent invested or committed – the typical range for when the firm would begin raising capital for its next offering in a fund series. Some of the firm’s previously announced public-to-private transactions have not yet closed, so the capital for those deals is considered committed but not deployed, according to Gray.
Going forward, Blackstone plans to deploy a significant amount of capital outside of North America, Gray said. Markets like Spain present opportunities because of legacy distress in real estate leftover from the financial crisis, in addition to interest rates that are likely to stay lower for longer. In India, where IT services and business processing are positive themes for real estate and private equity, Blackstone has been a big buyer of office buildings. In the first half of 2018, the firm said 40 percent of the capital it invested in real estate was deployed outside of North America.
Blackstone’s core-plus platform increased assets under management by 88 percent year-on-year to $31.6 billion less than five years after launching the business. The firm’s core-plus strategy was largely responsible for the increase in real estate assets under management inflows, accounting for $2.6 billion of the total $5.1 billion reported. At the end of the second quarter, Blackstone had only $2.8 billion available of the total $25.3 billion committed to the Blackstone Property Partners core-plus fund.
The firm reported an overall economic net income of $1.1 billion as of June 30 – up 56 percent year-on-year – while real estate ENI fell 21 percent to $319 million from approximately $402 million in the second quarter of 2017. Real estate assets under management rose to $119.4 billion during the second quarter – a 15 percent increase on the $104 billion reported during the same period in 2017. Total assets under management increased 18 percent year-on-year to $439.8 billion.