Blackstone Ready to Lend After Raising Record Property Debt Fund
September 22 2020 - 08:29AM
Dow Jones News
By Peter Grant
Blackstone Group Inc. closed this month on the largest
real-estate debt fund ever, giving the investment firm plenty of
cash to lend to property investors looking to go shopping during
the coronavirus pandemic.
One of the world's largest owners of commercial property,
Blackstone began raising money for the fund in the spring of 2019
and the $8 billion it took in exceeded expectations, said Jonathan
Pollack, global head of Blackstone Real Estate Debt Strategies.
Fundraising got a boost after Covid-19, partly because interest
rates fell, increasing the appeal of relatively high-yielding real
estate debt.
"There's an expectation that there will be a greater opportunity
in real estate debt than there has been," Mr. Pollack said in an
interview.
The fund will make new loans and buy real-estate debt securities
along with other investments. Blackstone's real-estate debt
business has grown to $26 billion of property debt assets under
management, up from $10 billion five years ago. Overall, its global
real-estate portfolio is valued at $329 billion.
Fundraising by private-equity firms has declined overall this
year as the pandemic created enormous uncertainty and barriers to
travel and other business practices especially in the early months.
As of mid-September, private-equity funds had raised $81.5 billion
compared with $142.9 billion during the same period last year,
according to data firm Preqin.
But it is beginning to pick up. Other recent closings include a
$950 million real-estate debt fund raised by KKR & Co. that is
focusing on the most junior tranches of commercial mortgage-backed
securities.
During the first few months of the pandemic "everybody
regardless of lender class was assessing their own portfolio," said
D. Michael Van Konynenburg, president of Eastdil Secured LLC. "Once
people got to July they felt they understood where their own
portfolios are and started to ramp up and look for new deals."
Much of the new capital raised is by firms planning to focus on
distress properties. Billions of dollars of loans backed by malls
and hotels are in default, according to data firm Trepp LLC. At the
same time, many of the traditional lenders, like originators of
commercial mortgage-backed securities, have put on the brakes. That
is increasing the rates borrowers are willing to pay to lenders
still in the game.
"New capital invested expects to earn greater returns," said Mr.
Pollack.
Blackstone's debt funds -- which have historically returned
about 10% annually to investors -- tend to avoid riskier debt
deals. Much of its business involves making first mortgages to some
of the world's largest real-estate companies and investors.
For example, Blackstone might make a loan today to the buyer of
a well-leased office building that was in contract to be sold
before Covid-19 hit and the deal collapsed. "It's going to get done
today in much more uncertain capital markets," Mr. Pollack
said.
"Twelve months ago the guy buying the building would get 12
different term sheets from lenders of all stripes," he said. Today
fewer lenders will be able to give the buyers the certainty they
need that they can close the deal "and they'll pay more" for
certainty, Mr. Pollack said.
Mr. Pollack said Blackstone's debt portfolio hasn't suffered
many problems from loans it made before the pandemic. He said that
is partly because Blackstone's low risk loans are typically about
60% to 65% of the values of the properties.
"It also helps to be very selective about who you lend money
to," Mr. Pollack said. He pointed out that Blackstone's borrowers
have tended to be "well capitalized institutional investors that
you would expect to hold on to [properties] through a period of
dislocation."
Write to Peter Grant at peter.grant@wsj.com
(END) Dow Jones Newswires
September 22, 2020 08:14 ET (12:14 GMT)
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