COMMENT: The Apple of real estate(2)

In this column last year, we likened Blackstone to IBM. Just as with IBM back in the day, we suggested investors couldn’t get into trouble for backing the New York private equity real estate powerhouse, such was its successful track record. However, news this week of the firm eyeing an unprecedented $10 billion first close this March for Blackstone Real Estate Partners (BREP) VIII has got us thinking Blackstone is more akin to another tech icon – Apple.

That is because the queue of investors to get into Blackstone Real Estate Partners (BREP) VIII is reminiscent of the launch of Apple’s latest iPhone. Indeed, like the late Steve Jobs launching an Apple product onstage, Blackstone even recently hired a ballroom in the Waldorf Astoria in the interests of efficiency to run a six-hour due diligence session for more than 100 would-be LPs. Apparently many more besides dialed in to listen to main man Jonathan Gray and various investment heads presenting the salient points of the deal. 

Blackstone actually ran two of these marathon sessions in total because its headquarters building at 345 Park Avenue was of insufficient size. And, while we were told by eyewitnesses that it was wasn't quite like watching Jobs, there was indeed a stage and the use of visuals, though less glitzy. We hear also that the language used was more ‘level-headed’ than perhaps it might be at an Apple event.

Gray kicked off proceedings as the firm ran through deals and fund performance figures. LPs were told how BREP VII, the current global fund, was tracking IRRs of 27 percent. And, if LPs wanted more than top-level presentations and Q&As, they could go into an ante room and conduct further diligence one-on-one with a Blackstone professional. 

Reaction to the events, as word spread about them, and of course to the $10 billion first closing itself, was of incredulity. It had seemed difficult to imagine that the firm would be able once again to shock with its fundraising prowess, just like it had done when it broke the record with BREP VII, and also last year with the new regional offerings in Europe and Asia. 

But by raising more than 75 percent of the equity it was targeting for BREP VIII in one quick closing, it will leave the market gobsmacked. Certain PERE sources are now suggesting that the fund could well reach $15 billion before the final close.

Prior to Apple launching the iPhones 6, critics doubted the tech firm could sustain its stellar performance and its shares accordingly took a pounding. But Apple thrives on innovation and continues to surprise while holding onto customers. Blackstone likewise enjoys the trust of its clientele, but arguably thrives more on consistency than innovation. Even if some LPs suspect fund VIII won’t reach the same returns as Fund VII, they evidently still want the product.