Blackstone Group, the U.S. private equity group, said it remains the best-positioned real estate investor to take advantage of the distress in the system as it confirmed the first closing on a $4 billion seventh fund. About $1.7 billion of that investment was raised in the last two months.
The announcement follows its most active year for real estate in 20 years.
The Blackstone Real Estate Partners (BREP) VII surprised on the upside as to its first closing total, and says it expects by final close at the end of January that the fund will exceed $10 billion.
The private equity giant’s total “dry powder” – cash reserves available to spend on real estate – inclusive of BREP VII’s first raising amounted to $10.1 billion at the end of the third quarter.
“Conditions remain favorable given significant distress in the system and the short supply of opportunistic capital,” said Stephen Schwarzman, chairman and CEO in Blackstone’s third quarter earnings call. “We expect these conditions to persist for several years. Competition on new deals is limited.”
“We have the largest pool of available capital in our asset class, and can move quickly and with certainty to close a deal. While lending markets have tightened and CMBS activity continues to be constrained, financing is available for prime assets and strong sponsors like ourselves,” Schwarzman added.
Schwarzman argued that Blackstone has funds that can take advantage of the quickened pace of deleveraging, which has picked up since the summer and can target assets – directly or through real estate loan portfolios through either is opportunity funds, such as BREP VII, or through its Blackstone Real Estate Debt Strategies platform, which includes the mezzanine fund where its minority stake investment in the RBS Project Isobel joint venture will be housed.
Over the 12 months to the end of September Blackstone has invested or committed to around $5.7 billion in real estate.
In addition, Blackstone has committed to several sizable commitments post quarter end, amounting to another $1.4 billion for a total of $7.1bn, “reflecting the ongoing strength of our pipeline.”
Included in that spending is Blackstone’s deal to acquire a 10.1 million-square-foot portfolio of suburban office properties from Duke Realty Corp. The portfolio is located in seven markets throughout the Midwest and South. BREP VII has agreed to purchase the 82-building portfolio, which includes substantially all of the company’s wholly owned suburban office properties in Atlanta, Chicago, Columbus, Dallas, Minneapolis, Orlando and Tampa.
The Suburban Office Portfolio is 84.6% leased and the buildings have an average age of 15 years. Assumed debt in the transaction is expected to be $30 million. Blackstone will assume leasing and property management responsibilities for the portfolio.
James Wallace is the CoStar Finance Reporter based in London