BlackRock: Turning the page in Asia

A long chapter in New York-based asset manager BlackRock’s Asian real estate investment story has finally closed.

On November 1, CapitaLand Commercial Trust, Singaporean conglomerate CapitaLand’s real estate investment trust, completed the S$2.09 billion ($1.54 billion; €1.3 billion) purchase of Asia Square’s Tower 2 from BlackRock. It ended a two-year-long sales process for the Singapore twin tower complex that began when Tower 1 was put on the market in September 2015. That tower was sold to Middle East sovereign wealth fund Qatar Investment Authority for S$3.4 billion last year.

The second exit comes just under a decade after the private equity real estate firm MGPA, now part of BlackRock, invested S$2.97 billion to purchase the land for the development for its $3.9 billion third opportunistic real estate vehicle in 2008. The move to invest a mammoth percentage of the pan-Asia BlackRock Asia Fund III in one complex and one market was criticized at the time by industry observers.

Fund III’s performance is a far cry from the opportunistic returns targeted at the time of the fund close. The vehicle was generating a since-inception internal rate of return of 3.5 percent and a 1.2x equity multiple for US public pension fund New York State Teachers’ Retirement System as of the end of June 2016, according to the latest fund performance data made public by a US investor. PERE understands that following the entire Asia Square exit, Fund III continues to generate a single digit IRR.

“If you look at a lot of the other funds that straddled the GFC, those either returned nothing or 20-40 cents to the dollar,” he remarked. “Many of them don’t even exist anymore. This fund returned all the capital and made a profit. Compared to its peers, it has done well and is in good shape.”

Nonetheless, some lessons do appear to have been learned from this experience.

This September, BlackRock raised around $500 million for BlackRock Asia Property Fund IV, its first higher-yielding real estate fund in Asia following the acquisition of MGPA in 2013.

The fund was incorporated in 2014, and after an approximately six-month fundraising extension period agreed by the limited partners, BlackRock closed the vehicle at roughly half of the $1 billion hard-cap target. In a crucial change in investment strategy from Fund III, PERE understands that there is a clause in Fund IV’s marketing document whereby BlackRock cannot deploy more than 40 percent of the fund’s total equity in one single market, according to one person familiar with the matter.

The firm is generally doing far fewer development deals in the region and is setting its sights on running a core strategy in Asia. PERE understands it raised a core vehicle in 2012, now fully invested in markets including Australia and Japan. Sources familiar with the firm say the opportunistic series is not the only strategy BlackRock would like to be remembered for in the region.