After launching earlier this year, Blackstone has now raised more than $4 billion for its seventh opportunistic real estate fund in Europe, including $3.2 billion during the third quarter alone, according to the firm’s Q3 2023 earnings results.
“I feel pretty good about our relationships and our ability to fundraise even in a difficult period,” said Jon Gray, president and chief operating officer, during the firm’s third-quarter earnings call on Thursday. “In European real estate, the fact that we raised 3-plus billion in the quarter says something powerful about Blackstone.”
The New York-based mega-manager began fundraising for Blackstone Real Estate Partners Europe VII in Q1 2023 and held an “accelerated” first close on $1.3 billion during the second quarter, PERE previously reported. The firm is eyeing a similar fundraising target for BREP Europe VII as its predecessor vehicle, which closed on €9.8 billion in 2020.
“Over half of our investment activity in real estate this year has been in Europe, given greater dislocation and pressure on sellers in the region,” said Gray.
Blackstone also commenced the investment period for BREP Europe VII in September and will start to earn management fees on the fund after an effective four months’ fee holiday for first-close investors, chief financial officer Michael Chae noted during the call.
That said, Gray said that real estate transaction volume has been slow because of the rising rate environment and the increase in the cost of capital. He also did not expect Goldman Sachs and other banks coming to market with large commercial real estate portfolios to significantly impact deal flow.
“I don’t know, given the size of the real estate market, if any individual transactions are enough to move the market,” Gray said. “It’s not one large trade. I think the market will ultimately clear based on where buyers and sellers are willing to transact, and you’ll see that, I’m sure, over the coming months as things start to settle in.”
In real estate, the firm made $4.2 billion in realizations during the third quarter, compared to $5.5 billion in the preceding quarter. Exits in Q3 included the BREIT sale of the self-storage company Simply Self Storage for $2.2 billion, which Chae described as “one of the largest-ever transactions in the sector, which generated a profit of over $600 million and a gross multiple of invested capital of 1.8 times in less than three years.” Meanwhile, $2.6 billion was deployed in the sector during the quarter, compared to $4.1 billion in Q2 2023.
“But ultimately, there will be real estate to buy and real estate to sell,” Gray said. And with our $66 billion of dry powder, I think we’re going to be in a really unique position.” He noted that Blackstone had invested less than 5 percent of its $30-plus billion global opportunistic real estate fund, BREP X. Meanwhile, the vast majority of its latest Asia real estate fund, BREP Asia III, is uninvested and BREP Europe VII is also still largely uninvested, he said.
“So, we think we’re well positioned in this environment, particularly, if banks pull back and there are liquidity shortfalls,” Gray remarked.
Elevated interest rate levels and an economic slowdown will put more pressure on borrowers and lead to higher default rates in various sectors, he said. “I think it is reasonable to assume there’s going to be more pressure in real estate certainly,” he said.
“When there’s high uncertainty, people need capital in a hurry, and you’re willing to take a longer-term view on asset values and normalization, you can step in these times and make attractive investments,” Gray added. “So, yeah, when we think about what makes us enthusiastic, having this large pool of capital with some more pressure out there, that should create opportunities.”
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