The Real Deal Miami

Blackstone investors demand high returns, as real estate exposure grows

September 05, 2012 02:15PM

Jonathan Gray, Blackstone’s global head of real estate

The Blackstone Group is walking a delicate tightrope as its real estate portfolio grows exponentially and its investors continue to demand stellar returns, according to Bloomberg News. The private equity firm, which now generates 63 percent of its income from real estate investments, is putting the finishing touches on raising a seventh fund worth $13.3 billion — 22 percent larger than its previous fundraising round and the largest fund ever compiled by a property investor.

But as Blackstone accumulates more assets, industry analysts say it becomes more difficult for the firm to outperform competitors. In fact, the firm’s annualized return of its first four funds descended from 39.7 percent to 14 percent as their size grew to $2.7 billion from $467 million.

The firm is also faced with selling off assets from its fifth and sixth funds, according to Bloomberg, in order to maintain high returns. Blackstone holds about $13 billion worth of unrealized investments, including large parts of its Equity Office and Hilton acquisitions, that it must sell as most prospective buyers face financing difficulties.

Still, its not beyond the firm’s capacity to emerge successfully, with high returns, in its maneuvers. “They know every market and submarket in the primary, secondary and tertiary cities,” Eastdil Secured CEO Roy March, who expects a major sell-off from the firm in the near future, told Bloomberg. [Bloomberg] — Adam Fusfeld