The Blackstone Group, which is still raising capital for its current global real estate opportunity fund, said a new global real estate fund already is on the horizon, given the firm’s current pace of real estate investment.
In 2011, Blackstone invested around $7.6 billion of investors’ capital in real estate, with the bulk of its activity centred on purchases of solid but undermanaged properties from distressed owners at a discount to replacement costs. At that rate of investment, “we’ll be back very soon” with a new global real estate fund, said Tony James, the firm’s president and chief operating officer, during an earnings call today. “Frankly, I don’t think we can raise fast enough to sustain that pace.”
The New York-based private equity and real estate giant has closed on more than $6 billion for its latest global real estate fund, Blackstone Real Estate Partners (BREP) VII, which is on pace to become the largest real estate fund in the world. BREP VII is expected to surpass the previous fund in the series, BREP VI, which closed on $10.9 billion on February 2007, James noted. “We’re still fundraising for that fund, so it’ll be a little while before we fully finish that fundraising, fully invest it and then get back in the market for a global fund.”
Blackstone, however, has the opportunity to fundraise for more specific regions, such as Asia or Europe. The firm currently is investing its third European fund, with about half of the capital in the vehicle still left to deploy.
In fact, Europe will be a major focus of real estate opportunities for Blackstone in 2012, as banks in the region start unloading distressed assets. “Right now, we view Europe as very interesting and perhaps, this coming year, the most active opportunity we will have,” said James. “I think we’re going to have a bit of a golden moment to deal with the deleveraging pressures of Europe, and the economy is going to be slow there, so I think it’s a good time to jump in.”
With $33 billion in dry powder across all of its funds, including $10 billion in real estate, Blackstone has plenty of money for real estate in Europe. “In real estate, we’ve been waiting for several years, really since the meltdown, for the European banks to start selling assets,” James said. “That’s started big time.” In fact, in the past year, the firm has begun to buy a number of portfolios and properties from European banks. Additionally, it has set up “very interesting” structures with European banks to allow the institutions to continue to own a piece of their loan and real estate portfolios. “European real estate suddenly has become very active, really along the same themes that got the US active 18 months ago, which is distressed owners of properties not being able to refinance,” he added.
Blackstone reported that real estate revenues surged 53 percent for the full year, from $1.03 billion in 2010 to $1.58 billion in 2011. The carrying value of its real estate portfolio was up 16.7 percent for the year, driven by rising occupancy and rental rates, and fee-earning assets under management (AUM) for real estate grew to $31.2 billion at the end of 2011, compared to $26.8 billion at year-end 2010, with the increase attributed to the start of the investment period for the BREP VII fund. Fourth quarter revenues for real estate, however, declined to $392.4 million from $417.2 million in 2010, primarily as a result of declines in investment income and transaction and other fees, which were partially offset by a rise in performance fees.
Overall, total revenues at Blackstone grew from $3.1 billion in 2010 to $3.3 billion in 2011. Its total AUM also increased 25 percent to a record $137 billion, from $110 billion the previous year.