Blackstone writes down Hilton deal by half

The New York-based private equity real estate firm has reportedly written down its $1.45bn investment in the hotel chain to just $742m as of the end of 2008. It has also written down investments in casino company Harrah's Entertainment and semi-conductor unit Freescale.

The Blackstone Group has written down the value of its investment in Hilton Hotels by 49 percent as of the end of 2008, according to a report by peHUB.

The New York-based firm declined to comment. However according to the report, Blackstone invested $1.45 billion in the deal through its fifth buyout fund, Blackstone Capital Partners V, which closed on $21.7 billion in August 2007. As of the end of last year, that equity investment had an unrealised value of $742 million.

Under fair value guidelines, firms such as Blackstone have recently been given more flexibility in marking assets to market when a market is deemed inactive. However, the accounting standard has resulted in many private equity and private equity real estate fund managers taking significant hits to their portfolio investments.

The hospitality sector in particular though has been severely hit by the global economic downturn. In March, PKF Hospitality Research said the US lodging industry faced a “grim” 2009 with an expected 13.7 percent decline in revenue per available room and a drop in occupancy of 7.8 percent over the year – the worst figures reported by PKF since 1932.

Blackstone bought Hilton, which includes the Waldorf Astoria, Conrad, Doubletree and Embassy Suites brands among others,for $26 billion in July 2007.

The peHUB report went on to state that Blackstone’s investments in the casino group Harrah’s Entertainment, the semiconductor unit Freescale and debt portfolios from Citigroup and Deustche Bank were also all marked down.

Blackstone’s $137.5 million investment in Harrah’s was reportedly written down to $34.4 million as of year end, while a $1.2 billion investment in Freescale was valued at $180 million – an 85 percent writedown. The Citigroup and Deutsche Bank debt investments were written down by 70 percent and 100 percent respectively, the report continued.

Not all Blackstone’s deal were being written down, the report noted. Blackstone's $809.9 million investment in information firm Nielsen was valued at $1 billion as of year-end, while the firm’s $220.1 million investment into Kosmos Energy was valued at $602 million at the end of 2008.