The Blackstone Group has reopened its latest European real estate fund, Blackstone Real Estate Partners (BREP) Europe IV. The New York-based investment firm plans to increase the vehicle – the large opportunistic real estate fund to ever be raised in Europe – by $2 billion, ultimately making it more than double the size of its predecessor fund.
“Given demand from our limited partners, we are taking the unusual step of reopening and expanding this fund by $2 billion, bringing it to about $8.8 billion,” said Blackstone president Tony James in a call with reporters today. He added that the firm was reopening the fund primarily to existing investors, from which “there’s plenty of demand” to take all of the incremental capital.
Limited partners in funds typically worry about the J-curve – where investors are charged a management fee for capital that has been committed but not yet deployed, leading to temporary negative returns – for the first three or four years of the fund’s life. Six months after its final close in March, however, BREP Europe IV already is more than two-thirds invested. As of September 30, the fund was generating a total net return of 19 percent and a realized return of 73 percent with a 1.1x multiple, according to the firm’s third-quarter earnings results.
“There’s no J-curve, so they’re very pleased,” said James. “And I don’t anticipate it extending the investment period or materially changing the fee structure.”
The rapid deployment of BREP Europe IV’s capital is reflective of the current investment environment in the region. Recent market volatility “just opens up the spigot a lot” on opportunities both in Europe and emerging markets, particularly in Asia. James noted that Blackstone’s real estate activity had been more than 90 percent focused on the US, but it now has shifted to 60 percent outside of the world’s largest real estate market.
“Europe is on a bit of a different cycle,” James said. “One of the reasons you’ve got European opportunities now is Europe is starting to hit some headwinds, whereas the US is definitely on the road to recovery, in my opinion.”
In a subsequent investor call today, Blackstone chairman Steve Schwarzman added: “We were waiting for the European real estate sales to break open. It did, we were ready and we’ve executed.” The newly expanded fund will enable Blackstone “to continue to take advantage of distressed opportunities in Europe.”
BREP Europe aside, Blackstone remained active in fundraising in a variety of other real estate strategies. The investment manager raised a total $1.6 billion of capital for its real estate business during the third quarter, including $209 million for BREP Asia, which is nearing the completion of its fundraise and anticipated to hit its cap of $5 billion.
Meanwhile, Blackstone’s core-plus real estate platform attracted $402 million during the quarter and is on track to amass $4 billion to deploy between its separately managed accounts and new commingled fund by year’s end or early 2015. The firm also collected $400 million during the third quarter for its Blackstone Real Estate Debt Strategies business for its private vehicles. Additionally, the firm is eyeing the launch of its next flagship global real estate fund, BREP VIII, by the end of the year.
Blackstone reported economic net income (ENI) of $493.23 million in real estate during the third quarter, up 19 percent from $414.04 million from the same year-ago period. Total assets under management (AUM) in the asset class grew 16 percent to $80.19 billion from $68.96 billion during the third quarter of 2013. Realizations in real estate were $4.4 billion in the quarter, almost triple the same time last year, delivering an average multiple on invested capital of 2.1x.
Total ENI for the firm was $758 million during the last three months, up 18 percent from last year. Total AUM hit a record $284 billion, up 15 percent year-over-year, despite returning more than $50 billion of capital to investors over the last 12 months.