Tony James: Blackstone Seeing Real Estate Opportunities

NEW YORK (Reuters) – Private equity firm Blackstone Group (BX.N) is starting to see attractive opportunities in real estate again, after waiting on the sidelines for deals since 2007, its chief operating officer Tony James said on Tuesday.

James, speaking at a Barclays Capital conference that was webcast, said he thought real estate values were bottoming, and he expects three new deals to be announced in the next week or so.

In a slide on Blackstone’s website to accompany the talk, Blackstone said it is seeing attractive opportunities for real estate in discounted debt and properties from distressed sellers.

Blackstone has $28 billion of capital to invest across its funds, of which $12 billion is for real estate investments, according to a presentation slide — slightly less than the $29 billion it said it had in August.

In broader comments, James said that while he expects a few quarters of stronger earnings, and the world is “bottoming out,” the economy is still weak.

Longer term, the recovery will be grudging but slow, James said, cautioning that it is dangerous to be exuberant in investing in this environment.

Among investments he is focused on are underpriced but secured credit and distressed assets.

“I think we’re in for a “W” sort of shape (recovery) and a much lower glide path out of this,” James said.

He sees somewhere between $500 billion to $1 trillion in corporate defaults — which would be four to eight times the last peak.

James noted that leveraged lending for new deals remains difficult, so deals Blackstone is doing typically have a lot of equity, are medium sized and tend to be less than $3 billion market capitalizations.

He will look at exiting investments if there is the opportunity for long-term value, noting that the equity markets are “wide open.” Private equity firms have been starting to put portfolio companies forward for IPO, such as Kohlberg Kravis Roberts & Co’s Dollar General.

James predicted that 2010 will continue Blackstone’s run of double-digit asset management growth, based on what the company has in hand today.

Blackstone in August reported higher quarterly earnings. James expects Blackstone will pay the full $1.20 distribution to public shareholders this year.

(Reporting by Megan Davies and Michael Erman; editing by Gunna Dickson)