Despite closing on $13.3 billion for the largest-ever real estate opportunity fund in 2012, The Blackstone Group managed to hit a new record in property fundraising in 2013. The New York-based investment manager raked in $15.8 billion in new real estate capital last year, much of it coming from its new Asian and European funds.
Blackstone’s first Asian real estate fund, Blackstone Real Estate Partners (BREP) Asia, brought in a total of $3.2 billion in 2013, nearly half – $1.5 billion – of which was collected in the fourth quarter alone. Meanwhile, its fourth European real estate fund, BREP Europe IV, attracted a total of $5.6 billion, the majority of which – $3.9 billion – also came in during the fourth quarter. Both of the funds are expected to hit their hard caps of $5 billion and $6.9 billion, respectively.
Driven largely by this record equity haul, Blackstone’s real estate business grew 40 percent to nearly $80 billion in total assets under management (AUM) over the year – and almost double its size two years ago. Additional inflows came from $1.6 billion in co-investment capital across its various property funds; $715 million raised through BXMT, its commercial mortgage real estate investment trust; and $3.3 billion from its second real estate debt strategies vehicle, Blackstone Real Estate Debt Strategies II. Also contributing to the fundraising total was money raised for the firm's new core real estate strategy.
Indeed, among Blackstone’s notable property deals in 2013 were its first two core real estate investments, including the purchase of a 29 percent stake in US shopping center owner Edens for $718 million late last year. These transactions contributed to a record year on the investment front for Blackstone, which deployed or committed $11.6 billion in real estate capital last year.
“The core area is massively larger than the monies that we have access to,” said Blackstone chairman Steve Schwarzman during an investor call today. “It’s something logical for us to think about in a little more depth.”
Opportunistic real estate accounts for just 10 percent of institutional capital allocated to real estate, Schwarzman noted. “Our basic business, which is high return, surprisingly has almost no risk of loss of capital historically, and I don’t understand why people don’t allocate way more money to that strategy because it’s worked out to be terrific over 20 years.”
Tony James, Blackstone’s president, added that core real estate would represent new capital, typically from new investors. “If you look at what some other guys have done, it could be a real scalable business,” he said. “It’s huge, potentially.”
Still, much of Blackstone’s property transactions occurred outside of the US. “The US has healed a lot, so there are less distressed properties for us to focus on and values have come up a lot,” said James during a call with reporters this morning. “In Europe, the banks are starting to be more aggressive about disposing of assets, given their healthier balance sheets, so there’s now a lot of opportunity in Europe. The US is a great place to be and it’s probably the strongest place to be in the world right now, but the values are better in Europe. Europe has bottomed out and will get better.”
James added that Blackstone’s investment rates and opportunity set in real estate in the world’s developing markets also has been growing. “There’s some fantastic opportunities in emerging markets all of the sudden because of the flight of capital out of emerging markets and the tighter money in a lot of those countries,” he said. “We’re suddenly able to buy real estate properties in fast-growing markets longer term at less than physical replacement costs.”
Blackstone’s real estate business recorded economic net income of $2.1 billion in 2013, up 107 percent from the previous year. Nearly half, or $932 million, was generated in the fourth quarter alone, more than quadruple the $246 million in economic income during the fourth quarter of 2012.
Real estate accounted for 60 percent of Blackstone’s $3.5 billion in overall economic income in 2013, up 76 percent from the previous year. Total economic income for the year included $1.5 billion in fourth quarter economic income, which itself rose 130 percent from $670 million during the fourth quarter of 2012. Total AUM for the firm was $265.76 billion in 2013, up 26 percent from $210.22 billion in 2012.
“We had just a fantastic fourth quarter,” said James. “Virtually every business was humming and, while the talent of the firm in general is a great strength, it’s amazing to see the power of this place when it fires on all cylinders at once.”