Blackstone plays it safe with $2.7B Japanese rental property deal

The firm is giving the core-plus segment more attention than it has in the past

Jon Grey and Tokyo skyline (Credit: CHARLY TRIBALLEAU/AFP via Getty Images)
Jon Grey and Tokyo skyline (Credit: CHARLY TRIBALLEAU/AFP via Getty Images)

Blackstone Group and its institutional investors see stability in Japan’s low-upside residential market.

The New York-based financial firm has agreed to pay more than $2.7 billion for a portfolio of 220 rental properties mostly in Tokyo and Osaka, according to the Wall Street Journal.

That’s a little less than 10 percent of the $29.4 billion it’s raised for core-plus (essentially, low risk portfolio with modest returns) as of its most recent filings.

While Blackstone’s focus remains on its larger and riskier opportunistic funds, the core-plus strategy could help bring in investments from institutional investors like pension funds, which have put billions of dollars towards lower-risk real estate in recent years.

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The firm also marketed the strategy with its first offering to small investors — a 2017 non-traded real estate investment trust with an entry point of $2,500.

Blackstone’s leadership has talked about boosting core-plus for years. Then-CEO Stephen Schwarzman said in 2014 it could grow that business to more than $100 billion.

Four years later, CEO Jonathan Gray said in an earnings call that Blackstone’s core-plus business “could go from $250 million of revenues… to $1 billion in the next few years.”

The firm’s core-plus funds have brought in annual returns of around 10 percent as of December, compared to 16 percent for its opportunistic funds. It’s launched three such funds since 2014 and all of its core-plus funds are open-ended.

Regarding the Japanese portfolio, Blackstone plans to boost cash flow by increasing occupancy, hiking rents, and with more efficient management, according to the Journal. The firm owned the properties before 2017, but then sold it to Anbang, which put them back on the market last year. [WSJ]Dennis Lynch