Blackstone raises largest ever €7.8b European fund

Blackstone has raised €7.8b for its fifth European opportunistic real estate fund, Blackstone Real Estate Partners Europe V (BREP Europe V), making it the largest ever dedicated European fund, it announced earlier this month.

‘We are grateful to our Limited Partners for their continued support,’ Anthony Myers, Blackstone’s head of real estate Europe, said. ‘The fund is already over 20% invested or committed, and we continue to see compelling opportunities to deploy capital across the continent, while delivering certainty to sellers and adding value to our properties.’

The fund will invest the majority of its capital in the five largest European economies: Germany, the UK, France, Italy and Spain. The remaining capital will be invested in markets such as the Nordics. The fund will invest in offices, industrial, retail and residential properties as well as hotels. Analysts expect the new fund to have a net IRR of 15%. Its predecessor, BREP IV, closed in March 2015 having raised €5.1 bn in just six months.

‘US investors are used to these really big, diversified funds, such as Blackstone’s,’ said Henri Vuong, director of resreach at INREV. ‘There has been a gradual shift in Europe and there are now a lot of efforts being made in trying to deliver multi-country, multi-sector funds, which offer investors a real estate market play.’

Pan-European funds have become extremely popular in recent years, reflecting investor interest in a broader spectrum of assets as part of a diversified portfolio. Blackstone’s ability to execute big deals, often off market, has allowed the real estate investment behemoth to build up an enormous war chest. Its real estate arm had $32.3 bn of ‘dry powder’ waiting to be invested at the end of the last quarter. Blackstone had over $102 bn of real estate AUM globally as of end-March 2017.

‘It’s a continuation of what we’ve seen over the last two-to-three years,’ said Andy Moylan, head of real estate products at Preqin. ‘Capital is being concentrated over fewer players, like Blackstone, who dwarfs everyone else. There’s still plenty of appetite for Europe, so I think we’ll see several more €1b funds launched this year. One thing we notice is that there are fewer core funds being raised and more debt or opportunistic ones, which reflects strong institutional demand for higher risk assets.’

More than 20 Europe-focused private real estate funds have already closed this year (as of 9 June), including Blackstone’s latest fund, according to Preqin. While BREP V is several times larger than all of the others, other notable fund closes include Orion European Real Estate Fund V, an opportunistic fund that raised €1.5b. Kildare European Partners II, a debt fund, raised $1.95b, according to Preqin.

Investors are also redefining the meaning of core and opportunity, according to Vuong at INREV. ‘With the lack of core product today, many investors are developing to core, whereas in the past any development would have been categorised as opportunity. Several investors have come out recently and said they’re redefining what constitutes a particular asset class, including CalPERS. Investors can’t find enough core assets so they’re going up the risk curve to seek better returns, rather than because they prefer riskier assets.’

Billion dollar investors who have more than €1b to invest – have become increasingly popular in the past two years as allocations to real estate grow. Moreover, the ‘Billion Dollar Club’ of real estate investors has risen by 15% since 2014 to 433 institutions in 2017, according to Preqin. Interestingly, the club represents a whopping 84% of institutional capital allocated to real estate, despite accounting for just 13% of the total number of active investors.

‘Institutional allocations to real estate are dominated by a small group of investors which allocate large amounts to the asset class,’ said Moylan at Preqin.

‘The scale of Billion Dollar Club investors’ involvement with the asset class affords them a lot of influence in the industry. Typically comprising the largest investors in terms of overall AUM, the Billion Dollar Club has seen its ranks swell in recent years, as investors seek the income opportunities, strong returns and low correlation to other asset classes of real estate investments.’

The largest proportion of Billion Dollar Club investors are public pension funds (29%), followed by insurance companies (22%), asset managers (15%) and private sector pension funds (15%), according to Preqin. The single largest institutional investor in private real estate is the Abu Dhabi Investment Authority, which is estimated to allocate $50bn to the industry.

Core strategies are most preferred by Billion Dollar Club investors, with 56% looking to target them over the next 12 months. Significant proportions will also seek value added (49%) and opportunistic (48%) funds, according to Preqin.

Every geographic region is set to be targeted by a greater proportion of Billion Dollar Club investors in the next 12 months compared to other investors. In particular, 62% of Billion Dollar Club investors will seek investments in Europe.

It has been a busy month for Blackstone: it sold its European logistics platform Logicor to China Investment Corporation’s (CIC) affiliates for €12.25b.

Logicor owns and operates logistics assets in 17 countries, including the UK, Germany, France and Southern Europe. The portfolio comprises around 147 million square feet of logistics space. The deal is expected to close later this year.