Changing tack

For years, Blackstone’s European real estate focus has been on backing operating companies rather than buying assets. Things are about to change, says Robin Marriott.

'Blackstone returns to European property’ read a headline in Monday’s Financial Times. The story beneath it discussed the closing of the firm’s latest fund, Blackstone Real Estate Partners Europe III.

On close inspection, the article was more accurate than the headline itself. Blackstone, led in Europe by senior managing director Chad Pike, has never actually been out of European real estate investing. What the firm hasn’t been doing in recent years is buying commercial real estate assets directly.

Following a radical strategy change in 2005, the firm concentrated on buying European property through operating companies. It did this because it thought prices for traditional assets had become too high.

Neither was Europe a priority for Blackstone during that period. Much of its headline-grabbing activities were taking place in other regions.

In the US, a lot of Blackstone magic was sprinkled on office REITs, with the $39 billion takeover (and simultaneous break up) of Equity Office Properties in 2007 being the highlight. In Asia, the firm built out a platform too, with the opening of an office in Beijing last year and the acquisition of a large shopping centre development in Shanghai underlining its  ambitions there.

In Europe, though, things were lower key. But now, with rising levels of distress helping to correct prices, Blackstone appears to be at a tipping point where it can return to a more traditional strategy of investing in assets instead of operators. Chad Pike, Blackstone’s real estate head in Europe, has said as much.

Doing this won’t be easy. With so many aspects of how Europe’s economies are going to perform still unclear, the challenge is to figure out what sectors and types of assets to invest in. Blackstone’s new Europe fund held a first close last year but hasn’t made any investments yet, which suggests Pike and colleagues are still in ‘watching and thinking’ mode.

But at some point they will get back into action mode. And with €3.1 billion of fresh equity ready to deploy, you can bet that when the firm does start to invest again, there will likely be some fireworks.