Despite London office value reductions due to Brexit, Blackstone's real estate business has benefitted from the UK's June 23 vote to leave the European Union, executives said during the firm's second-quarter earnings call Thursday.
The carrying value of the firm's opportunistic funds rose 2.2 percent during the quarter, a gain which was partially offset by devaluations in its London office holdings devaluations after Brexit. The firm did not provide further specifics on the value reductions. Still, the private equity giant is bullish on the outlook for the country overall and London specifically.
“It's not so clear totally to me what will happen with Brexit,” Tony James, the firm's president, said on a media call Thursday. “The place we're most worried about is London offices oriented toward financial services companies because there could be commotion there as people are shifting around. But we're fundamentally positive about the UK.”
Blackstone, which invested $1.6 billion in global real estate during the quarter, used the UK's market volatility as an opportunity to acquire properties at a discount, James said. The firm reportedly purchased a £135 million ($178 million, €162 million) portfolio of logistics and industrial assets from Aberdeen Asset Management, which suspended trading in two of its property funds for a week earlier this month and placed multiple properties on the market to improve its liquidity status.
“In the near-term, Brexit has helped us on the acquisition side and on the divestiture side, strangely,” James said. “On the acquisition side, it's created some pressure on institutions, or at least desire for many institutions, to get liquid to sell assets. We've been the beneficiaries of some of that.”
“Brexit was net good to us, we think,” James added. “While there were markdowns in some assets, there were markups in others. On balance, there were markups. The portfolio increased in value.”
In the second quarter, the firm saw $3.4 billion worth of real estate realizations through private assets sales in the Equity Office Property and Trizec office portfolios; two secondary equity offerings of shopping center real estate investment trust Brixmor; and the sale of a 66 percent interest in Tysan Holdings, the Hong Kong publicly-listed real estate company.
Despite global volatility, James pointed out that fundraising has been, and will continue to be, strong across Blackstone's businesses. In real estate, the firm raised $4.1 billion for its debt and equity platforms, including $1 billion for core-plus funds and $1.4 billion for its fifth European fund. The firm held a second close for Blackstone Real Estate Partners V last week on $6.3 billion, according to a filing with the US Securities and Exchange Commission. Blackstone officially launched the vehicle at the start of 2016, but had been marketing to existing limited partners since at least the fourth quarter of last year, according to documents from San Francisco Employees' Retirement System. The firm plans to close the vehicle later this year, PERE previously reported.
Blackstone's real estate assets under management totaled $103.2 billion, an increase of 13 percent year over year, and total assets under management rose to a record $356.3 billion.
Overall, the firm's total profit rose 2 percent year over year, with economic net income totaling $520 million. The firm's real estate economic income rose 53 percent from the second quarter in 2015, to $209.2 million.