The Real Deal New York

Blackstone getting ready to close on record $20B real estate fund

New vehicle has enough purchasing power to buy all the CRE that traded in NYC, Chicago and San Francisco throughout most of 2018
January 15, 2019 11:05AM

Blackstone’s Kathleen McCarthy and Kenneth Kaplan

The Blackstone Group is getting ready to close its largest private-equity real estate fund yet: a $20 billion investment vehicle with three times as much purchasing power.

Real estate funds typically use $2 of debt for every dollar of equity, meaning that the new fund has about $60 billion figure in buying power, the Wall Street Journal reported. That’s more than all the commercial real estate that traded in New York, Chicago, and San Francisco through most of 2018.

In order to put that money to work, Blackstone will most likely have to ink some large deals.

“If you have to deploy billions of dollars over a three-year investment period, it’s very inefficient to do it in $10 million chunks,” Michael Stark, co-head of the global advisory firm and placement agent Park Hill Real Estate Group, told the Journal.

Blackstone’s latest fund is expected to close in the first quarter of 2019. And the eye-popping sum that the company has culled together from U.S. and overseas pension funds, foreign governments and high net-worth individuals is more than double the size of what Blackstone’s competitors have ever raised.

Blackstone’s high-risk opportunistic real estate funds have delivered annual average net returns of 16 percent, but the firm may have trouble repeating such successes.

There’s increasing concern that property prices may fall after a decade-long bull market, especially if interest rates rise. And previous Blackstone bets, such as its 2015 purchase of office buildings and other properties in Brazil, has yet to pan out as the country’s property market hasn’t bounced back.

Blackstone, like other big private equity players, often gives breaks on things like management fees to investors who pledge large sums to its vehicles. [WSJ] – Rich Bockmann