Blueprint: Blackstone defaults on debt but sees waning fund redemption queues, Lone Star’s 22nd fundraise coming, AXA IM Alts raises notable capital for debt

Blackstone defaults on Finnish portfolio despite efforts to stave this off in the same week it reports redemption queues for BREIT softening; Lone Star Funds begins fundraising for its 22nd real estate opportunity fund; AXA IM Alts pours as much into debt as it does equity in a sign of the times; and more in today's briefing, exclusively for our valued subscribers.

They said it

“It’s important to make these choices, not only for next week, but next year, the year after, 10 years after that. My retirees are going to be around forever”

Nathalie Palladitcheff, CEO of Ivanhoé Cambridge, the real estate subsidiary of Caisse de dépôt et placement du Québec, describes the importance of stewardship in her role overseeing the pensions of around 6 million Canadians. Read the full interview with PERE’s latest Lifetime Achievement award winner here

What’s new?

Mixed results: Jon Gray’s Blackstone has defaulted on a loan in Finland but has seen redemption queues for its non-listed REIT soften (Source: Blackstone)

Buyer’s remorse
Two high-profile defaults, both stemmed from portfolios acquired via larger platform acquisitions, signal that the pain long predicted for office owners has arrived.

In the US, Pacific Management Investment Corporation subsidiary Columbia Property Trust defaulted on a $1.7 billion CMBS loan against a portfolio of seven offices. PIMCO took the REIT private in 2021, after early signs that the return to office was beginning post-pandemic. During the transaction, the Newport Beach-headquartered manager refinanced the portfolio with floating rate debt, a decision that has come back to haunt them. While some specific portfolio level issues have not helped – its largest tenant Twitter refused to pay rent, for instance – the return to work bet has not materialized

In Europe, Blackstone failed in a bid to extend the terms of a loan it took out in 2017 after its acquisition of Finnish manager Sponda. The CMBS loan, with an initial securitized balance of about €541 million – the outstanding balance as of December was €297 million – issued against a portfolio of office and retail assets in Helsinki, was set to mature on February 15. It was granted two one-week extensions before ultimately defaulting on March 2. Blackstone originally tried for a year’s extension, offering assets to be put up for sale and an increase on the senior loan margin, sister publication Real Estate Capital Europe reported last week. The loan is now with special servicer Mount Street as Blackstone, and the wider market, awaits its outcome.

Redeeming feature
There has been a more positive note for real estate’s 800-pound gorilla, however. Blackstone has been the subject of much media attention for mounting redemption requests in its $71 billion non-listed real estate investment trust, BREIT, which senior executives, including president and chief operating officer Jon Gray, have made personal efforts to address. The New York-based firm entered its third month of receiving more redemption requests than its 2 percent monthly limit, and also continually exceeding its 5 percent quarterly limit, receiving $3.9 billion of requests in February. That was down notably from the $5.3 billion of requests received in January and the first time in six months the firm had seen a reduction in requests month-over-month.

Blackstone posted a negative 0.2 percent return in January. Further write-downs could scare investors off redemptions for fear of getting a lower value. It could also exacerbate the queue should investors sense a bottom further down the line. For now, the trend line has switched in the right direction. The next few months will tell the market a lot more.

Cometh the hour
Certain times in the private real estate market cycle suit certain organizations best. When markets reset, that is traditionally when Lone Star Funds, the mostly opportunistic business of sector magnate John Grayken, makes hay. The Dallas-based manager, which has raised more than $85 billion from institutional investors via 21 funds since its inception in 1995, is poised to make it 22.

Teachers Retirement System of Louisiana is one investor considering a commitment to Lone Star Real Estate Fund VII, according to a filing. No fundraising target was specified. Predecessor fund LSREF VI attracted $4.6 billion by its final close in 2019, which was invested across Europe, Asia, North America and Latin America.

Where will Fund VII be deployed? Lone Star typically levitates towards where dislocation occurs at scale. The firm reduced its Asia presence in 2021, judging there to be a lack of near-term opportunity in the region. With increasing instances of broken capital structures in Western markets, a Europe and North America-bias would be a good bet. “You have an idea of what the regional allocation may be when you form a fund, but you don’t know for sure,” Grayken told PERE last year in a rare interview. “Things can change a lot. Then you tend to do more business where the returns are most appealing.”

Trending topics

Coming down from the high
Are the multifamily sector’s days as the darling of private real estate numbered? Apartment rents declined in every major metropolitan area in the US over the past six months through January, according to a report last week in the Wall Street Journal. The period also marked the first time in five years rent fell every month for six months, the article said.

This drop comes after the sector saw a 25 percent rise in rents over past two years following the introduction of covid-19 vaccines in late 2020. Now, falling rents suggest tenants have hit a ceiling in terms of how much they can pay, while the threat of layoffs and a possible recession have created additional concerns on affordability. Meanwhile, multifamily landlords can expect further downward pressure on rents as nearly 500,000 apartments are projected to be developed this year – the biggest delivery of new supply since 1986 – thanks to developers making bets that rents would continue to remain high.

The wonderful cold storage of Oz
Houston-based Hines has made its first marks on the cold storage sector in Australia via its open-end, core-plus Asia Property Partners Fund. A 120,000-plus square foot facility in Ormeau, Queensland is the seventh industrial asset purchased by the firm in Australia and also the first cold storage asset in the fund.

“Investments such as these are vital as economies are recognizing the importance of addressing the shortage in supply of reliable refrigerated facilities,” Chiang Ling Ng, chief investment officer for Hines in Asia, said in an announcement. The firm has been active in APAC cold storage post-covid, purchasing assets in China, Korea and Japan beginning in 2020, as a reaction to its perceptions of increased demand across the region.

Data snapshot

A shifting paradigm
Private family and high-net-worth individual investment volumes in real estate surpassed institutional investment volumes for the first time on record, according to global consultancy Knight Frank’s The Wealth Report 2023. The almost 41 percent of global investment volume from private wealth is the market segment’s largest share of investment volumes since the firm’s records began.

People moves

Greystar’s new leading ladies
Greystar is making key changes to its global capital raising team. The South Carolina-based manager has promoted Jen Ciullo [her LinkedIn profile here] to global head of investor relations, effective March 1. Also last week, Bianca Solomons [her LinkedIn here] joined Greystar as its first Asia-Pacific head of investor relations.

Solomons, who previously worked as head of institutional capital and head of debt at Alceon Group, will also add to Greystar’s credit capability in the APAC region. Both leadership changes were spurred in part by the expansion of the firm’s Asia-Pacific platform, which has grown to $4 billion of assets under management with an 85-strong team across Australia, Japan, China and Singapore. Adam Pillay [his LinkedIn here], who previously led the global IR team while also overseeing Greystar’s investment management business in Asia-Pacific, will now be focused on the latter role. Check out our exclusive coverage here.

Investor watch

AXA says credit’s due
In another sign that credit strategies are taking center stage in the private real estate sector, AXA IM Alts revealed yesterday it had raised almost the same amount of capital for real estate debt as it did for real estate equity from affiliates and third-party investors last year. In an announcement on the year’s fundraisings, the alternative investments arm of French insurer AXA’s investment management business said it collected €3.5 billion for real estate debt alongside €3.6 billion for real estate equity.

In last year’s fundraising announcement, by contrast, AXA IM Alts highlighted it raised €6.3 billion for real estate equity strategies – almost 43 percent more – and it did not specify its real estate debt fundraising effort, including that instead in a wider, real assets bucket for which it collected €3.8 billion. This is a trend likely to sustain, Florence Dard, the firm’s global head of client group, said: “In 2023, we will also focus on further growth in the infrastructure and private debt and alternative credit sectors.”

This week’s investor meetings

Tuesday, March 7

Wednesday, March 8

Thursday, March 9

Friday, March 10

Today’s letter was prepared by Peter Benson with Jonathan Brasse, Evelyn Lee, Charlotte D’Souza and Christie Ou contributing