Over the past two decades, The Blackstone Group has invested heavily in opportunistic property deals, becoming the world’s largest private equity real estate firm in the process. Now, the New York-based firm is expanding into a far more sizable segment of the institutional property market – core real estate.
“The core and core-plus space is so much larger than what we do in opportunistic,” said Jonathan Gray, global head of real estate at Blackstone, in an interview with PERE. “I think there’s a significant opportunity to make this a large business.”
Indeed, opportunistic real estate accounts for just 10 percent of institutional real estate allocations, Blackstone chairman Steve Schwarzman noted during an earnings call in January. To expand into core and capture a significantly larger percentage of real estate capital could signal even greater growth for Blackstone, which increased total assets under management by 40 percent to nearly $80 billion – some $51 million of which was fee-earning – in 2013.
The new platform will be led by AJ Agarwal, a senior managing director who formerly focused on opportunistic investing in North America. He currently is the sole Blackstone partner involved in the business, which will target multifamily, office, industrial and retail investments and will mirror the global scope of Blackstone’s overall property business in the US, Europe and Asia.
To date, Blackstone has invested approximately $1 billion of equity in the core business, beginning with the $718 million acquisition of a 29 percent stake in Edens in December. The firm also has committed an additional $250 million in the expansion of the retail company, bringing its total investment to $968 million.
Since then, the firm has closed on its second core transaction – a large office acquisition in Europe – and is in exclusive talks on another core US office deal on the West Coast. While the firm did not provide specifics, other deals in the pipeline include transactions involving office assets in Europe and Asia and office, retail and industrial properties in the US.
With all three of its initial core transactions, Blackstone has been investing capital raised through separately managed accounts. For example, the North Carolina Retirement System and State of Wisconsin Investment Board committed $487.5 million and $200 million, respectively, to the Edens transaction, according to recent investment reports by those pension plans. However, PERE understands that Blackstone is gearing up to launch its first commingled core real estate fund sometime this year.
For more on this story, read the full article in the March issue of PERE.