The Blackstone Group may have just raised the largest private real estate fund ever, but that major feat still will have less of an impact on building the firm's assets under management (AUM) than its planned purchase of most of GE Capital's real estate portfolio.
Blackstone collected $14.5 billion for its latest global flagship property fund, Blackstone Real Estate Partners VIII, during the first and only institutional close for the vehicle last month. Last week, the firm announced its plans to acquire, with Wells Fargo, the bulk of GE Capital Real Estate's assets, for $23 billion, of which Blackstone will be paying $14 billion.
In a call with reporters today, however, Blackstone president Tony James said that the firm's flagship funds, which include BREP VIII, do not add a significant amount of scale to Blackstone's business. “What's scaling our AUM is the creation of new products around new capabilities and new markets,” he said.
The GE transaction, for example, will give Blackstone new capabilities in Australia and Mexico. Through its real estate debt fund, Blackstone Real Estate Debt Strategies, the company has agreed to purchase performing first mortgages in the two countries for $4.2 billion as part of the GE transaction.
“There are teams in those places that are good teams that have done remarkably well that we didn't have before, and that opens up new product opportunities and new fund opportunities,” said James. “But it's not just going to be the scale of a few big old funds getting bigger and bigger and bigger and more and more lumbering.”
Indeed, one of Blackstone's newest real estate products, its core-plus fund, Blackstone Property Partners, has attracted more than $5 billion of capital to date, including $1.6 billion during the first quarter. The firm launched the fund, and its overall core-plus business, just last year.
Blackstone reported economic net income (ENI) in real estate of $638.27 million during the first quarter, up 99 percent from its ENI during the same year-ago period. Meanwhile, its assets under management in real estate rose 14 percent to $92.8 billion, from $83.33 billion during the first quarter of 2014.
Meanwhile, the company's overall ENI for the first quarter came in at $1.6 billion, also up 99 percent the same period last year. Meanwhile, Blackstone's total AUM companywide grew to $310 billion, making it the first alternative asset manager to surpass the $300 billion AUM mark.