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James: ‘We don’t want more than we can invest’

The New York-based private equity real estate giant Blackstone’s president Hamilton ‘Tony’ James insists the current market opportunity more than matches the firm’s recent record capital hauls.

New York-based private equity real estate giant The Blackstone Group has raised $18.3 billion of equity for its private real estate strategies since the start of the year, it said as it delivered its second quarter earnings. That was a record haul by a firm in the sector for that timeframe.

On a media call, president Hamilton James insisted that, despite many international property markets nearing cyclical zeniths, there was still enough investment opportunities to warrant such sizeable capital raises.

In February, Blackstone raised $15 billion for the latest in its opportunistic fund series, Blackstone Real Estate Partners (BREP) VIII. Such was the appetite for the vehicle from investors, much of the capital was raised in a single closing. That has led certain quarters within the private real estate sector to question whether such a volume of capital can be deployed successfully at this point in time.

“We would never take in more money than we thought we could deploy wisely,” responded James. “The reason we have these caps and the reason we turn away investors is that we don’t want more than we can invest,” he said.

Blackstone has been busy deploying capital as well as raising it. In the second quarter, the firm invested or committed to invest approximately $8 billion across its BREP funds, its Blackstone Real Estate Debt Strategies (BREDS) funds and Blackstone Property Partners, its core property investment platform, including $3 billion in the second quarter.

On the call, James pointed to a current average return of 31 percent IRR across real estate investments and later told PERE: “We are maniacal about protecting historic returns. The returns we earn today are just as good or better than we ever earned. Preserving that is our goal.”

Chief financial officer Laurence Tosi said that approximately half of Blackstone’s current dry powder was raised within the last two years and so “it has quite a long runway”.

He said: “We’re seeing more deals and more broad base globally than we’ve ever seen. There’s a constant list of deals that is different to a few years ago. In Asia, the US and Europe, we’re seeing more deals, better flow and new value.”

James concluded: “In the past few years, interest rates have been near zero and asset values have responded. In that time, we’ve been delivering returns of high 20s and 30s across private equity and credit real estate in that environment, putting out lots of money.”

“It’s one thing raising a lot of money, but we’ve been able to deploy a lot on great returns. I hope we can sustain those returns.”

At the end of the second quarter, Blackstone’s real estate assets under management increased to $91.6 billion, up 14 percent from a year prior.

Overall, its total assets increased 19 percent to $332.72 billion. Total revenue, on the other hand, fell 46 percent year on year to $1.2 billion.