Blackstone steps up Asian deals as competition eases

Private equity firm eyes real estate acquisitions as banks stay cautious and funds sell assets

PUBLISHED : Thursday, 12 December, 2013, 3:25am
UPDATED : Thursday, 12 December, 2013, 3:25am

Blackstone Group, which has put US$1 billion of equity this year into Asian real estate, says it is 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 centres 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.

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 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 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, 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 US-based real estate investment manager and adviser. Banks unloading assets to comply with regulations such as the Volcker rule and Basel rules on capital, as well as maturing funds "have created lots of attractive deals in the market", Wong said.

Blackstone is betting the size of its real estate business will give it an edge and help it fetch better prices, Heady said.