Blackstone steps up property deals in Asia

20131212-bt-blackstone-steps-up-property-deals-asia-pic [HONG KONG] Blackstone Group LP, which has put US$1 billion of equity this year into Asian real estate, says it's poised for more deals in the region as maturing funds sell assets and banks retreat amid new regulations.

"As the competition has receded, the investment landscape has become more interesting," said Chris Heady, the firm's regional head of real estate investing in Hong Kong. "We believe this competitive dynamic will persist for some time."

Blackstone's property acquisitions in Asia this year range from Chinese shopping malls to Australian office buildings. Since making its first deal in the region in 2007, the biggest real estate private-equity firm has invested US$7 billion in about 30 transactions, including US$3 billion of equity.

The flow of deals available to the New York-based company is being supported by a decline in fundraising in the region and sales by funds approaching the time when they must return cash to investors.

Last year, private-equity firms and banks created 31 property funds in Asia, totalling US$7.8 billion, compared with 52 funds totalling US$30 billion in 2008, according to London-based research firm Preqin Ltd.

The funds typically return capital in five to 10 years, with a potential extension of one or two years, meaning the 2008 funds began maturing this year.

Fundraising for the region has been hit by investor preference for US and European markets, where the financial crisis and the subsequent European debt crisis are seen to have created greater opportunities and higher returns.

"One of the themes or opportunities we've been pursuing is buying assets from funds that are selling their assets and repatriating capital to the US and Europe," said Mr Heady. "If you look into the next couple of years, the data would suggest that there's going to be a significant number of funds maturing in this part of the world."

Meanwhile, global banks including Goldman Sachs Group Inc and Citigroup Inc have scaled back their real estate businesses in Asia because of scarce debt financing and slumping property values after the global financial crisis.

The Volcker rule, part of the Dodd-Frank financial reform act passed by the US Congress in 2010, also restricts banks from investing more than 3 per cent of their capital in hedge funds or private equity, through which some real estate investments were made.

"There is currently a significant imbalance that favours asset managers with dry powder," said Nicholas Wong, principal in Hong Kong at Townsend Group, a Cleveland, Ohio-based real estate investment manager and adviser.

Banks unloading assets to comply with regulations such as the Volcker rule and Basel rules on bank capital, as well as maturing funds "have created lots of attractive deals in the market", Mr Wong said.

Apollo Management LP in March 2010 agreed to buy Citigroup's real estate investment unit at a time the US bank was under pressure from regulators to sell assets to shore up its balance sheet.

Goldman's leveraged Whitehall real-estate funds suffered losses when the credit crisis halted cheap debt financing and depressed property values. The firm's head of real estate investments Stuart Rothenberg left in December 2008 after 21 years at the firm.

Blackstone is betting the size of its real estate business will give it an edge and help it fetch better prices, Mr Heady said. The company has been using its global funds to pay for Asian real estate and is currently setting up its first Asia property fund targeted at US$4 billion.

The firm, which made few property investments in Asia before the crisis, took over management of US$2.6 billion in Asian real estate assets from Bank of America Corp in 2010, he said.

Global buyout firms such as TPG Inc and KKR & Co don't have standalone property funds in Asia. Carlyle Group LP has two Asia funds with capital of US$896 million. In August, the Washington-based firm said it would invest US$200 million with the Townsend Group in 17 warehouses in China.

Globally, assets in Blackstone's real estate business, led by New York-based Jonathan Gray, rose to US$69 billion in September from US$64 billion in June. Gray's group has raised about US$2 billion for its fourth European property fund, which is targeting 5 billion euros (S$8.6 billion).

Under chief executive officer Stephen Schwarzman and president Tony James, Blackstone has been expanding beyond buyouts since the financial crisis into property, hedge funds and credit investing. The company's biggest diversification has been into real estate, which generated 42 per cent more revenue in the third quarter this year, compared with a year earlier.

Last month, Blackstone announced it was purchasing a 40 per cent stake in SCP Co, a Shenzhen-based shopping mall developer and operator, its biggest mall investment in Asia. The investment totalled about US$400 million, a person with knowledge of the matter said at the time.

In Japan and Australia, Mr Heady said the firm purchased real estate assets this year from funds in "wind-down mode", including the Greensborough Plaza mall in Melbourne. The firm agreed in July to pay A$360 million (S$410.4 million), a person familiar with the transaction said at the time.

Last year, the firm bought an office building in Singapore from a German open-ended fund that was facing redemptions, Mr Heady said. It bought Sydney's Top Ryde City shopping centre for A$341 million from receivers in November last year.

In July, it agreed to buy seven Australian office buildings from GE Capital Real Estate for A$290 million, according to three people familiar with the matter.

A total of US$5.3 billion of retail properties changed hands in Australia this year through the third quarter, surpassing full-year figures for the last five years, according to CBRE Group Inc.

Foreign investment continued to rise, accounting for 15 per cent of transactions in the third quarter, it added.

Mr Heady said he favours China's warehouse business, which is being driven by international demand, third-party logistics companies and the growth of e-commerce and retail sales. The firm has invested in about 500,000 sq m of warehouse space for about US$80 million, he said.

Logistics rents in China are hitting new highs amid a supply shortage, registering 2 per cent growth over the previous quarter in Shanghai, Hangzhou, Tianjin and Guangzhou, CBRE said in a separate report.

"You have an economy that's a lot bigger, and you have fewer investors pursuing those opportunities," he said. "Just like any asset class where there's a demand-supply imbalance, that affects ultimately the price of assets." - Bloomberg

Source: Business Times, 12 Dec 2013

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Blackstone steps up Asia property deals

HONG KONG - The Blackstone Group, which has put US$1 billion (S$1.25 billion) of equity this year into Asian real estate, is poised for more deals in the region, as maturing funds sell assets and banks retreat amid new rules.

"As the competition has receded, the investment landscape has become more interesting," said Mr Chris Heady, the firm's head of real estate, Asia. "We believe this competitive dynamic will persist for some time."

Blackstone's property acquisitions in Asia this year range from Chinese shopping malls to office buildings in Australia. Since its first deal in the region in 2007, the biggest real estate private equity firm has invested US$7 billion in about 30 transactions, including US$3 billion of equity.

The flow of deals available to the company is being supported by a decline in fundraising in the region and sales by funds approaching the time when they must return cash to investors.

Last year, private equity firms and banks created 31 property funds in Asia, totalling US$7.8 billion, compared with 52 funds totalling US$30 billion in 2008,.

Fundraising for the region has been hit by investor preference for US and European markets, where the financial crisis and the subsequent European debt crisis are seen to have created greater opportunities and higher returns.

"One of the themes or opportunities we've been pursuing is buying assets from funds that are selling their assets and repatriating capital to the US and Europe," said Mr Heady.

"If you look into the next couple of years, the data would suggest that there's going to be a significant number of funds maturing in this part of the world."

Meanwhile, global banks including Goldman Sachs and Citigroup have scaled back their real estate businesses in Asia because of scarce debt financing and slumping property values after the global financial crisis.

The Volcker Rule, part of the Dodd-Frank Financial Reform Act passed by the US Congress in 2010, restricts banks from investing more than 3 per cent of their capital in hedge funds or private equity, through which some real estate investments were made.

"There is a significant imbalance that favours asset managers with dry powder," said Mr Nicholas Wong, principal in Hong Kong at Townsend Group, a US-based real estate investment manager.

Blackstone is betting the size of its real estate business will give it an edge and help it fetch better prices, Mr Heady said. The company has been using its global funds to pay for Asian real estate and is setting up its first Asia property fund targeted at US$4 billion.

The firm took over management of US$2.6 billion in Asian real estate assets from Bank of America Corp in 2010, he said.

BLOOMBERG

Source: Straits Times, 12 Dec 2013