But it was a big week for big funds and Morgan Stanley shared the spotlight with a new initiative from The Blackstone Group: The $4.13-billion Blackstone IPO, the largest Wall Street has seen in five years, was completed today and was reportedly six times oversubscribed. And although Washington has raised objections to the IPO this week on tax and national security grounds, investor appetite didn’t seem to be slowing.
From a real estate perspective, perhaps the most interesting aspect of the floatation is what was revealed about Blackstone’s investing in its IPO documents. According to documents filed with the SEC, the firm’s real estate division has been outshining its corporate buyout division for the past 16 years. The 360-page document revealed that Blackstone’s real estate funds have delivered annualized returns of 38.3 percent, surpassing the main corporate private equity business, which has returned 30.8 percent.
The documents also revealed that, since its inception in 1991, Blackstone’s real estate business has raised a total of $17.6 billion—and it continues to grow. The documents said that Blackstone has plans underway to raise approximately $10 billion for its next global real estate fund, which is expected to close shortly.
Blackstone’s IPO comes as the firm continues to sell-off many of the office properties it picked up earlier this year when it acquired Equity Office Properties for $39 billion in one of the biggest leveraged buyouts of all time. On Wednesday, Blackstone agreed to sell the REIT’s Chicago properties for a reported $3 billion. Earlier in the week, the firm sold its 5.9 million-square-foot West Coast office portfolio to Los Angeles-based Arden Realty, now part of GE Real Estate.
With both the Morgan Stanley and the Blackstone funds entering the market at roughly the same time, it’s going to be an active period for property investments. But with so much cash to deploy and certainly competition between these two megafunds on the same deals, can these funds really invest in opportunistic deals and score the appropriate returns? How will things change when more megafunds enter the fray?
On the other hand, how will this affect mid-sized firms? Will it be easier to find assets with the big guns chasing larger game? Or will they just face increased competition from other mid-sized players?
While the real estate investment environment will no doubt evolve as more megafunds are raised, the full extent of the changes in the ‘mega’ era remains to be seen.
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