Storm after the calm

The Blackstone Group has been active in Asia since 2006, but you might not have known it judging by how little capital it invested in the region initially.

Chris Heady, head of the firm’s Asia division, reveals how his team had proposed little at the firm's weekly real estate meeting in New York for years. “We really wanted to do our jobs and contribute,” he explains, “but I think we were contributing by maintaining our discipline. Now, and for the past couple of years, investment opportunities are more compelling and we see greater value, so we are pushing them.”

Recalling the years immediately following the opening of the firm’s first Asia office in Mumbai, Heady says: “Less than 10 percent of the equity we have invested in Asia occurred during those years.”

Then, in the summer of 2010, Blackstone’s caution switched to opportunism. The financial contagion had spread to Asia’s sophisticated markets, throwing up opportunities to buy real estate in distressed circumstances while simultaneously enveloping much of its competition. The capture of a ¥100 billion distressed loan book in Japan from Morgan Stanley at an equivalent of 32 cents on the dollar precipitated more capital outlays, and today Blackstone has invested $1.55 billion of equity in Asia, predominantly in Japan, Australia, India and China.

Accordingly, Blackstone’s Asia platform has grown to meet its greater appetite. Since opening in Mumbai six years ago, Blackstone’s real estate headcount in Asia has reached 50 professionals working across offices in Hong Kong, Tokyo, Seoul, Sydney and Singapore. In that time, it also has played the role of white knight for the investors of Bank of America Merrill Lynch’s ill-fated $2.65 billion Asian Real Estate Opportunity Fund in 2010, assuming its management after they fell out with the investment bank. Arguably the firm’s standout milestone in the region to date, the takeover inherited it an instant and deep education of private equity real estate investing in some of Asia’s key markets.

In 2013, Blackstone is expected to add a further milestone with the launch of its first dedicated Asia real estate fund. At press time, no details had been publicly communicated, but a fundraising of more than $2 billion for the vehicle is rumored to be targeted. If it pulls off the launch – and considering its success in raising the world’s largest private equity real estate fund [the $13.3 billion Blackstone Real Estate Partners (BREP) VII] in 2012, there’s little reason to suppose it won’t – then, like in the US and Europe, Blackstone will become the largest opportunistic real estate investing platform in terms of live capital in Asia as well.

Heady and senior colleagues Stuart Grant, Asia head of asset management, and Alan Miyasaki, head of Japan, would not discuss capital-raising efforts. However, in a rare interview at Blackstone’s London office, the trio walked PERE through the firm’s progress in Asia to date and its strategy in the region going forward. It is clear from the couple of hours spent with these men that Blackstone believes it is in the enviable position of being capital-rich in a region that currently offers both distress and growth – and, crucially, where it has little competition.

Needless to say, the three men predict plenty more investments. “If you extrapolate what we’ve invested over the past couple of years, then I see that more than doubling,” Heady states. “Asia offers an environment with long-term growth but short-term volatility, and that is a fantastic pairing of ingredients for opportunity investors.”

To read the interview in full, see this month’s issue of PERE.