Blackstone Steps Up Asia Property Deals As Rivals Fade
Blackstone Group LP, which has put $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 $7 billion in about 30 transactions, including $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, totaling $7.8 billion, compared with 52 funds totaling $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 U.S. 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 U.S. and Europe," said 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 U.S. Congress in 2010, also restricts banks from investing more than 3 percent of their capital in hedge funds or private equity, through which some real estate investments were made.
"There is currently a significant imbalance that favors 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," Wong said.
Apollo Management LP in March 2010 agreed to buy Citigroup's real estate investment unit at a time the U.S. bank was under pressure from regulators to sell assets to shore up its balance sheet.