Blackstone To Begin Fundraising for Real Estate Fund

Buyout shop Blackstone Group will begin fundraising this year for its next real estate fund, which could reach as high as $10 billion, Reuters reported. The firm raised $10 billion for a similar fund in 2008. That fund, Blackstone Real Estate Partners VI, is about 70 percent invested, Reuters reported.

(Reuters) – Private equity firm Blackstone Group (BX.N) said it expects to start fundraising this year for its next real estate fund, which could be about the same size as its $10 billion 2008 fund.

Blackstone, sitting on about $30 billion of capital to invest, has been active in buying U.S. commercial real estate such as hotels, retail property and warehouse space from distressed owners and others who need cash.

The company is unusual in its peer group of private equity firms in having huge real estate assets. It is seeing a recovery in the office and hospitality real estate sectors, and said concerns about inflation are increasing the interest in real estate as an investment.

“Real estate had a great year,” Chief Operating Officer Tony James said on a conference call to discuss the company’s fourth-quarter results. Blackstone invested nearly $5 billion in real estate in 2010, he said.

Its current real estate fund, Blackstone Real Estate Partners VI, is about 70 percent invested. As a result, it will start fundraising for its next real estate fund, BREP VII, this year James said.

“Our last fund was $10 billion and our target would be to do something similar,” he said.

Recent real estate deals struck by Blackstone include a $1.02 billion pact to buy industrial properties from ProLogic (PGC.L) (PLD.N); an investment in hotel chain Extended Stay America, which emerged from bankruptcy; and an investment in General Growth Properties Inc (GGP.N).

Commercial property, which was battered by the credit crisis and global economic downturn, has staged a rebound, most recently in the United States.

Blackstone said the value of its real estate funds rose 19 percent in the 2010 fourth quarter and 69 percent for the year, while its private equity portfolio rose 3 percent for the quarter and 29 percent for the year.

“In private equity, the portfolio is still improving but it isn’t accelerating improvement,” James said. “But real estate, which tends to lag, is showing quite good strength across the board.”

Overall, Blackstone’s fourth-quarter economic net income, or ENI, was $513 million, up from $329 million a year earlier.

Adjusted ENI was 46 cents per share, up from 29 cents a year ago and 16 cents above analysts’ average forecast, according to Thomson Reuters I/B/E/S.

ENI strips out items such as noncash charges for vesting equity-based compensation and the amortization of intangible assets. It is the measure that private equity firms prefer to report and that analysts follow.

Blackstone shares closed up 4.1 percent at $17.36, their highest level since September 2008. Blackstone went public in the summer of 2007 at $31 a share.

The company is paying a quarterly distribution to shareholders of 32 cents a share, bringing its full-year distribution for 2010 to 62 cents a share.

2 A.M. PHONE CALLS

Blackstone Chief Executive Stephen Schwarzman dialed in to the conference call from Europe. He has temporarily moved to Paris in order to manage the travel demands of frequent flights to Asia and the Middle East.

“It is a change of location which makes life a little easier,” Schwarzman said on the call. “But you have to stay up later and get phone calls at 2 a.m. and then get to work at a normal time … so I think someone is getting an extra six hours out of me.”

Schwarzman’s move to get closer to Asia is reflected in Blackstone’s investments. A large part of the investments it made last year from private equity went into emerging markets. Schwarzman said 80 percent of capital deployed in 2010 in private equity was invested in Asia.

Asia is expected to take a far smaller slice of Blackstone’s private equity investments this year, James said.

The skew towards Asia in 2010 was largely due to two U.S. deals falling through, James said. Blackstone had led a consortium trying to buy Fidelity National (FIS.N) in a $15 billion deal, and had unsuccessfully tried to buy Dynegy In (DYN.N).

“I think the U.S. will be a much more important component of what we do this year,” James said, adding that there would probably also be deals in Brazil with its new partner in the region, Patria Investimentos.

Blackstone bought a 40 percent stake in Patria in September. James also sees deals in Europe.

Blackstone said it just recently started investing its latest private equity fund — called BCP VI — which reached nearly $15 billion on Jan. 7.

Blackstone competes with a number of private equity firms such as publicly traded rival Kohlberg Kravis Roberts & Co (KKR.N) for private equity deals.

It has not struck any large leveraged buyouts recently, but has been considering a number of assets on the market.

It is among the private equity bidders vying for medical testing company Beckman Coulter (BEC.N), which has a market value of about $5 billion.

Two private equity consortia — one made up of Blackstone and TPG Capital, the second made up of Apollo [APOLO.UL] and Carlyle [CYL.UL] — submitted second round bids for Beckman on Wednesday, two sources familiar with the matter said. For more details

If successful, it would be one of the largest leveraged buyouts struck since the credit crisis.

Blackstone had been considering buying the beverages arm of Sara Lee (SLE.N) if the company had been sold to Brazil’s JBS. But the JBS deal ultimately did not happen. (Reporting by Megan Davies; Additional reporting by Soyoung Kim and Ilaina Jonas; Editing by Matthew, John Wallace and Bernard Orr)

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