ANALYSIS: Blackstone cements reputation for blockbuster deals

Blackstone has cemented its reputation for blockbuster deals following its acquisition of a $23 bn (€21.7 bn) real estate portfolio from GE Real Estate, the real estate arm of US-based General Electric Co, in partnership with San Francisco-based real estate lender Wells Fargo.

The deal is one of the biggest since the onset of the financial crisis in 2008, but Blackstone is by no means a stranger to blockbuster deals. In the autumn of 2007, it acquired hotel company Hilton Worldwide Holdings in a $26 bn leveraged buyout, pulling off a paper profit of $12 bn just four years later. The deal came hot on the heels of Blackstone’s $36 bn acquisition of US-based office owner Equity Office Properties Trust the previous year, which marked the largest leveraged buyout in history at the time. Blackstone paid $20 bn for the firm and assumed $16 bn in debt.

Such deals have been made possible by Blackstone’s prodigious fundraising drive in recent years. Such has been the success of its fund raising capabilities that it reported ‘undrawn capital (total “dry powder”) across all of its units of $46.1 bn at the end of last year, despite $30.6 bn of total capital invested and/or committed over the last year.

Real estate is the single largest profit generator for Blackstone, bringing in $1.9 bn of income in 2014 from investment returns and management fees globally. Its real estate arm now outstrips its private equity business in investment terms, accounting for $11.5 bn of investment globally last year (of which around $4 bn was in Europe), with private equity accounting for an additional $11.2 bn. In total, the firm had around $81 bn of assets under management globally at end-2014.

Even Blackstone’s chief executive, Steven Schwarzman, readily admits that Blackstone’s deep pockets give the firm an enviable advantage over its rivals. Speaking at an investor conference last year, he reportedly said: ‘If you are so much bigger than everyone else, you can really just write a check even with no financing to just make something happen. If you’re having a dialogue with a financial institution, it’s almost like, “Tell us how much you want to sell, we’ll give you a price.”’

And as many former powerhouses, including Goldman Sachs and Morgan Stanley, all but retreat from the real estate scene, Blackstone has fewer heavyweight rivals to contend with. Many real estate funds focusing on Europe in the past two years have a target size of less than a billion euros, including AEW Europe’s ‘Logistis’ fund, which had a final size of €820 mln and LaSalle Investment Management’s Real Estate Debt Strategies II fund, which had a final size of €723 mln, according to Preqin.

Those funds are dwarfed by the $14.5 bn that Blackstone raised in the first quarter for its Blackstone Real Estate Partners VIII fund – the largest-ever closed-end real estate fund - after reportedly spending just four months marketing it. A further $1.3 bn is expected to be raised from retail investors.

Starwood Capital Group raised $5.6 bn for its Starwood Global Opportunity Fund X and CIM Group raised $2.4 bn for its CIM Fund VIII, according to Preqin.

Private equity fundraising is on a roll this year, with $29 bn of aggregate capital raised globally for real estate funds in the first quarter of 2015, according to Preqin, almost double the figure raised in the same period in 2010. Interestingly, more than three-quarters of the capital raised in the last quarter was by just three firms – including Blackstone - and the number of funds closing fell significantly to 24, down from 51 in the same period last year, according to Preqin.

Both Blackstone and Wells Fargo declined to comment for this story.