Blackstone Group is set to finish raising capital for the largest-ever real estate fund. According to an article in The Wall Street Journal, the $20 billion fund is expected to close in the first quarter of 2019 for most investors.
At $20 billion, the fund is double the size of those raised by Blackstone’s competitors, according to the WSJ. It’s also about $4.2 billion larger than the fund the firm put together in 2015, Bloomberg noted, adding that the new fund is expected to follow a similar strategy as the last by investing in distressed properties.
While Blackstone can’t comment publicly on its plans for the fund while it’s still in the capital-raising stage, it can share ideas with investors.
According to the WSJ, executives told one investor this fall that it was considering investing in distribution centers near high-population areas that are seeing demand spike thanks to a surge in online retail.
Other targets may include rental housing, resorts in remote areas that make construction difficult, and properties in cities popular among younger, tech-oriented professionals, the WSJ reported.
Plus, the fund’s buying power exceeds its $20 billion capital, likely sitting closer to $60 billion as the firm typically uses $2 of debt for every $1 of equity.
For the wealthy individuals, foreign governments and pension fund managers who threw down capital, can they expect the returns to match Blackstone’s annual average net return of 16% for its real estate funds?
In the past, Blackstone’s “opportunistic” strategy, which employs steeper risks in search of big returns, has mostly paid off.
But analysts told the WSJ that the current interest rate environment might make it difficult for the firm to repeat its past performance.
“After a decade-long bull market, there is growing concern that property prices might fall, especially if interest rates rise,” the article stated. “Real estate is interest-rate sensitive, partly because buyers typically use a lot of leverage.”
