Blackstone Real Estate Fund Raises $13B

By Gail Kalinoski, Contributing Editor

Jonathan Gray, global head of Blackstone’s real estate business

The Blackstone Real Estate Partners VII fund has closed after raising $13.3 billion in 13 months from more than 250 global investors. It is the largest opportunistic real estate fund ever raised, according to Blackstone.

Approximately 35 percent of the fund’s capital has already been committed in a diverse set of asset classes and locations that saw the New York-based investment and advisory firm’s real estate unit snapping up retail, lodging, office and industrial assets across the United States.

“We are extremely appreciative to our investors for their strong support of BREP VII. We believe the current environment provides a highly attractive opportunity to generate favorable returns for them,” said Jonathan D. Gray, global head of Blackstone’s real estate business. “We think that the experience and global reach of our team uniquely positions us to capitalize on this opportunity.”

U.S. public pension plans, which fund retirements of state and local employees, made up the largest category of investors in the fund.

Blackstone’s real estate unit now manages more than $50 billion in equity as of the end of the third quarter.

The fund’s most recent acquisition was announced last week when SL Green Realty Corp. said it had formed a joint venture to recapitalize a 31-property, 4.5 million-square-foot office portfolio in southern California with an affiliate of BREP VII as the majority owner. The fund invested $85 million to take control of the JV, which also includes Gramercy Capital Corp. and Square Mile Capital Management L.L.C. The deal also gives Equity Office Properties, a Blackstone affiliate, responsibility for managing and leasing the properties that comprise 59 buildings in Los Angeles and San Diego.

Several large deals were finalized during the spring and summer, including BREP VII’s acquisition in July of 15 shopping centers from Regency Centers Corp. for $321 million. Six of the assets were in Florida, three in California, two in Dallas and one each in Raleigh, N.C.; Akron, Ohio; Nashville and Chicago. In June, the fund closed on a $1.4 billion joint venture purchase with DDR Corp. that acquired a 46-property shopping center portfolio from EPN Group. The Blackstone fund owns 95 percent of the JV.

The fund’s other major retail deals included the purchase of a 36-property shopping center portfolio for $473.1 million from Equity One in December, 2011.

In May, BREP VII acquired the U.S. Economy Hotels Division of Accor for $1.9 billion. The iconic Motel 6 brand was part of the purchase, as was Studio 6, an extended-stay economy chain. The deal gave the Blackstone fund control of 1,102 hotels in the United States and Canada.

The fund was also behind one of the biggest industrial transactions of the year so far when it bought a 16.7 million-square-foot industrial portfolio from DEXUS Property Group in June for $770 million. Located in the central United States, the portfolio has 68 properties, three of which are leased entirely to the Whirlpool Corp. The occupancy on the 65 other properties was 90 percent at the time of the sale.