INTERVIEW: Blackstone poised for €10b European shopping spree

Fresh from six months of capital raising, US private equity giant Blackstone is poised to embark on a mammoth European shopping spree for its fourth European real estate fund, BREP Europe IV.

The half year of capital raising saw Blackstone net €5.1 bn for BREP Europe IV. The new fund - which is expected to be geared by Blackstone to create a war chest in excess of €10 bn - will be the largest of its kind in Europe.

And while Blackstone does not have a set target in terms of how much it could invest in European real estate this year, it is expected to invest at least as much as during the past two years when it invested over $3 bn of equity a year. ‘We continue to have a strong pipeline in Europe,’ said Kenneth Caplan, head of European real estate at Blackstone.

DEALS
The private equity group has already made some acquisitions for BREP Europe IV. In March, it acquired a logistics portfolio in France and Germany from French REIT Foncière des Régions for €473 mln. The properties, which total 17 platforms and 750,000 m2, are all earmarked for the latest fund. In addition, Blackstone has acquired offices in Dublin and Milan as well as multi-family in Madrid for BREP Europe IV.

Along with Blackstone’s other three European real estate funds, the latest fund has a target gross annual return of 20%. It also has the remit to invest in all asset classes and geographical markets in Europe, according to Caplan: ‘We’re interested in real estate across Europe, from Ireland to Turkey and we are seeing opportunities across much of Europe. Our investment activity is opportunity-driven and is not restricted to a specific part of Europe. That said, we’ve seen an increase in opportunities in southern Europe, particularly Spain and Italy, and our activity there has been increasing.’

Blackstone’s latest fund could also be invested in record time, given the strong market fundamentals and a huge increase in deal activity in Europe over the past year. ‘Given the current market environment and our heightened level of activity today versus 2008, I expect we will invest the fund more quickly this time,’ Caplan said.

Blackstone’s first three European real estate funds are now fully invested. Its third European real estate fund raised €3.2 bn in 2008 and was fully invested by the end of last year.

CHALLENGING EUROPE
Nonetheless, there are still challenges to investing in Europe: ‘There’s clearly a lot of interest in Europe now - people feel more comfortable investing there. However, there is a tendency to "paint" Europe with one brush while obviously there are big differences in core markets such as the UK, France and Germany in terms of the economy, dynamics and real estate markets. The biggest challenge for us is finding good investment opportunities, although we continue to find compelling investment opportunities across Europe,’ Caplan said.

Caplan attributes Blackstone’s prodigious fundraising success to his firm’s ‘unique’ team. ‘We’re very fortunate - and grateful - to have the support of our investors. I think interest is down to our track record, our team of over 60 people dedicated to Europe and the fact that we have been active in Europe for 18 years. The way we run our business as a globally integrated real estate team is very unique and I think that resonates with our investors,’ he said.

His team has also built up a reputation not only for being able to recognise good investment opportunities but also for knowing exactly when to exit to maximise their return. At the end of last year, Blackstone sold its 50% stake in the Broadgate Estate in London - a 30-acre site in the City of London - to Singapore’s sovereign wealth fund GIC for £1.7 bn. Blackstone paid just £77 mln for its stake from British Land in 2009, although as part of the deal it also took on £987 mln of third-party debt. British Land, Britain's second-largest listed developer after Land Securities, still owns the remaining stake.

While Blackstone initially focused on corporate buyouts, its real estate business has soared in recent years and now holds $79 bn of AUM globally across the US, Europe and Asia.