Blackstone’s James: Indian office is ‘hottest market’

The president of the world’s largest alternative manager said investment opportunities in US real estate are ‘scattered.’

Blackstone president Tony James is more bullish on the Indian office market than he is on real estate closer to home, he said Thursday as the firm reported its fourth-quarter earnings.

The New York-based firm ended 2016 with $101.9 billion in real estate assets under management, up 9 percent year-on-year, according to its fourth quarter investment report released Thursday. The firm’s total AUM also rose 9 percent year-on-year, to $366.6 billion.

While Blackstone has significant dry powder, investing in US real estate has become challenging at this stage in the cycle, James said.

“The opportunities today [in the US] are scattered,” he said on Thursday’s media call. “They tend to be around some larger, multi-property assets.”

Globally, James noted that the “the hottest market in the world for us right now is Indian office,” with a sizable number of opportunities in Asia real estate.

The firm expects to launch its second Asia-focused opportunistic vehicle, Blackstone Real Estate Partners (BREP) Asia II, in the next year, Blackstone’s chief financial officer, Michael Chae, said on Thursday’s analyst call. The firm is reportedly targeting at least $5 billion for the new fund, similar in size to its predecessor vehicle, which closed in December 2014 on its $5.08 billion hard-cap. BREP Asia I was generating a 17 percent net internal rate of return as of December 31, according to the firm’s earnings report.

Overall, Blackstone had $3.5 billion in realizations in the fourth quarter, down from $7.2 billion – the firm’s second-highest quarter ever – in the third quarter of 2016. However, as of December 31, the firm had $5 billion of deals closed or under contract that are expected to close in early 2017.

The firm’s real estate funds continued to be strong performers during the fourth quarter. Blackstone’s flagship global opportunistic fund, BREP VIII, had a 17 percent net IRR, while its core-plus platform, Blackstone Property Partners (BPP), generated a 13 percent net IRR. At the end of the third quarter, BREP VIII had a 20 percent net internal rate of return, while BPP returned 14 percent.

Separately, Blackstone’s non-traded real estate investment trust, Blackstone Real Estate Income Trust, closed on its first purchase Friday, according to a filing with the US Securities and Exchange Commission. The REIT purchased a hotel, the Hyatt Place UC Davis, for $32.2 million from private equity real estate firm Westbrook Partners.

Blackstone launched the REIT in August to focus on core properties. James declined to comment on the REIT on Thursday’s media call.