Blackstone
Group has finished raising the largest commercial real estate fund ever,
with $20.5bn of commitments despite an increasingly tough commercial property
market.
The giant investment firm, which had $153.6bn in real estate
assets under management at the end of the second quarter, has been the world’s
leading real estate fundraiser.
Before it closed the
most recent global fund, Blackstone accounted for five of the top 10 largest
real estate funds ever raised, according to data firm Preqin. Its previous real
estate fund, which closed in 2015, raised $15.8bn, which was the record until
now.
The firm’s success in raising money partly
reflects a record of double-digit returns. Blackstone’s “opportunistic” funds —
which take higher risks in pursuit of higher returns — have delivered annual
average net returns of 15% over the past 27 years, according to company
filings.
Blackstone also has been a leader in recent years because pension funds,
endowments and other investors have been gravitating towards big brand names in
the private equity world. Another successful fundraiser,
Toronto-based Brookfield Asset Management closed a $15bn fund earlier
this year.
Blackstone has pursued a strategy of buying, fixing up and
selling office buildings, warehouses, stores and other property. Jonathan Gray,
the former head of the business last year, was promoted to president and chief
operating officer and he is widely seen as heir apparent to Blackstone chief
executive Stephen Schwarzman.
But high returns have gotten tougher late in this real estate
cycle, compared with the early years of the recovery when values were rising
sharply. These days funds depend more on increasing the incomes of the
properties they buy, which requires a good eye
for location and smart strategies for boosting rents and occupancies.
Some private equity firms are stockpiling cash, partly because
they are having difficulty finding properties to buy and partly because deals
might be more plentiful in a downturn when owners are distressed. As of
September, firms had $334.8bn of “dry powder,” compared with $243.6bn at the
end of 2016, according to Preqin.
Blackstone executives have said they have had no difficulty
finding deals. “Despite the challenging investment environment we deployed a
record $56bn over the past 12 months,” said Gray in July during a
second-quarter earnings call.
One of Blackstone’s real estate strategies has been to focus on
industrial property that is seeing strong demand partly due to the growth
of online shopping.
Earlier this year, the firm said it would buy a network of U.S. warehouses and
distribution centers from Singapore-based GLP for $18.7bn.
That purchase is
expected to close in the coming weeks. The firm’s opportunistic funds
contributed $13.4bn.
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