Blackstone writes down RE portfolio by 19%

The Blackstone Group wrote down its real estate investments by 19 percent in the first three months of this year – however more write-downs are to come in 2009.

Blackstone president Tony James said the New York-based firm recorded losses of $211.9 million in the first quarter, compared to losses of $477 million in the last quarter of 2008.

Those write-downs were across all property sectors, but were felt keenly in Blackstone’s lodging and office assets, James said. “I cannot think of a market in the world [in terms of real estate] that doesn’t have headwinds,” James added on a media conference call.

He told PERE on that call though that Blackstone expected further real estate write-downs in 2009, with the industry lagging the general economy. “Real estate has some catching up to do,” he said, predicting that the “underlying economy will continue to decline”, even given the recent upswing in global stock markets.

James reiterated Blackstone’s focus on real estate debt and rescue financing, and confirmed the firm was raising a distressed real estate debt fund. He expected opportunities to emerge later in 2009 and possibly early 2010 saying: “You want to have a combination of a desperate seller and an economic cycle near the bottom.”

Blackstone has $12 billion in dry powder after raising almost €3.1 billion for its latest European fund, Blackstone Real Estate Partners Europe III. That fund follows on the back of Blackstone Real Estate Partners VI, which closed last April on $10.9 billion. Much of the fund has yet to be invested.

James said Blackstone was currently looking at senior commercial real estate-backed securities, with potential returns of up to 20 percent. “For the risk that looks really attractive,” James said.

Overall, Blackstone reported losses of $93 million in the first quarter, compared to earnings of negative $827 million in the last three months of 2008. Private equity investments were written down by an average 3 percent across the portfolio, James said, with losses for the quarter of $68.4 million. James said the firm had $13 billion in dry powder for private equity investments and was teaming up Blackstone’s asset management arm, GSO Capital Partners, to target debt financing to corporate companies.