Blackstone’s Gray: ‘We’re very thoughtful on the size of the capital’

The New York-based mega-manager’s latest record-breaking opportunistic real estate fund will be nearly $10bn larger in size than its predecessor.

Blackstone has closed on $24.4 billion in its 10th global opportunistic real estate fund, Blackstone Real Estate Partners X, already making the vehicle the largest closed-end private equity real estate fund ever raised.

Jon Gray

While its prior record-breaking fund – the $20.5 billion BREP IX – took around a year to raise, the New York-based alternatives manager raised the $24.4 billion in just three months. Blackstone launched BREP X in March, initially targeting $25 billion. The firm is likely to close the fund soon with over $30 billion in capital, Jon Gray, president and chief operating officer, told investors on the firm’s Q2 investor call. Of the total amount, $300 million is to come from Blackstone itself, according to reports.

The largest public commitments to the fund have come from the Teachers’ Retirement System of Texas and Teachers’ Retirement System of the State of Illinois, which both committed $300 million, the same check size investors wrote for the predecessor fund. Other notable commitments came from the Minnesota State Board of Investment, Illinois Municipal Retirement Fund and San Francisco Employees’ Retirement System, per PERE data.

Chief financial officer Michael Chae noted on the call that Blackstone is likely to be ready to deploy the $30 billion starting in the fall. While the fund has already broken records, Gray said that the series has always scaled the funds relative to the opportunity.

“We’ve been very disciplined over time,” Gray said. “If you look at asset value growth in commercial real estate, I don’t think we’ve grown faster than that on a relative basis.”

The fund series has grown from low double digit billions since just before the global financial crisis in 2008, Gray said. BREP VI closed on $11 billion in capital in February 2008. The three subsequent funds – BREP VII, VIII and IX – grew by approximately $2.5 billion, $3 billion and $4 billion, respectively. The increase in size between BREP IX and X, however, will be almost $10 billion.

“We’re very thoughtful on the size of the capital,” Gray added. The continued growth of the BREP series comes down to performance, he explained: “If you look at the BREP global track record at 17 [percent] net since inception, investors have a lot of confidence in us. And it’s a similar story across our firm. We scale the capital in these drawdown funds relative to the opportunity and performance is what matters. We’re continuing to deliver that and investors continue to respond.”

The firm’s real estate portfolio is now its largest contributor to AUM. The firm currently manages a $320 billion real estate portfolio, up from $207.5 billion a year ago and now eclipsing even its $275.9 billion private equity portfolio, formerly its largest alternative asset class by AUM.

The growth of Blackstone’s real estate holdings is only set to continue because of additional capital Blackstone is deploying in the asset class. Beyond the global fund series, Blackstone still has over $13 billion available to deploy from two geographically focused funds. The firm closed on almost $10 billion in BREP Europe VI in March and is also still raising capital for BREP Asia III, which has raised $8 billion in commitments, per supplemental data from Blackstone.