Blackstone Creates Largest Real Estate Fund in History, Raising More Than $20 Billion

Article originally posted on CoStar on September 12, 2019

Blackstone Group headquarters in New York. (Bloomberg/Getty Images)

Private equity firm Blackstone Group pulled in $20.5 billion of total capital commitments, $5 billion more than its original target, to make its latest global real estate investment fund the largest of its kind ever created as investors wondering how long the record U.S. economic recovery will last look to larger, more established firms.

The record for the Blackstone Real Estate Partners IX fund runs counter to overall drops in the private equity industry as a whole, signaling that the long-running rise in property prices and dwindling supply of good deals has investors shifting their appetites to tried-and-true income properties and funds run by large managers such as New York-based Blackstone Group.

“Despite the challenging investment environment, we continue to see compelling opportunities around our highest conviction investment themes,” Ken Caplan, global co-head of Blackstone Real Estate, said in the company’s announcement of the fund closing.

The U.S. economic recovery reached a record stretch in July, prompting investors to wonder after an unprecedented decade of growth when any downturn could arrive. As a result, commercial real estate fundraising among private equity as a whole has begun to decline sharply with the number of funds completing their capital collection dropping to the lowest in more than a decade amid a flight to quality by investors, according to private equity data provider Preqin.

Through the end of June none of the fund’s newly raised money had been invested, Blackstone said. At $20 billion, it’s the largest real estate fund ever created, according to Preqin data.

The stock of dry financial powder positions Blackstone to be able to go after entire international portfolios as a single cash buyer. About 70% of the fund is to be targeted to U.S. investments with the remainder international. The fund has a five-year investment window.

“BREP IX’s scale allows us to commit capital globally in a differentiated set of complex transactions,” Caplan said.

While not yet invested, Blackstone has committed to its first investment. In June, BREP IX committed to purchase of Global Logistics Properties’ U.S. logistics assets for a total of $19 billion, alongside other Blackstone funds.

That acquisition is expected to close in coming weeks. The GLP portfolio consists of urban, infill logistics properties totaling 179 million square feet.

Among investors in Blackstone’s latest fund is the South Carolina Retirement System Investment Commission, which committed $100 million.

The system had previously invested $135 million in Blackstone’s seventh fund, which has produced solid net returns of 17.7%. Fund IX is targeting gross returns of 20% and net returns of 15% according to the retirement system.

With the closing of fund IX, Blackstone has now raised more than $100 billion in the past 10 years for its real estate funds.