Blackstone nears first close on real estate fund – exclusive

The firm, which is seeking $4bn for its third real estate debt fund, is eyeing a first close of around $1.5bn before year end.

Global investment firm Blackstone is planning a first close on its latest real estate debt fund by year end, PDI understands.

The manager is preparing to hold a first close of around $1.5 billion on its third real estate debt fund.

Blackstone declined to comment on fundraising.

The New York-headquartered firm is seeking $4 billion for the Blackstone Real Estate Debt Strategies (BREDS) III, as reported by PDI sister title Real Estate Capital in September. 

US pension funds the Pennsylvania Public Employees Retirement System and Illinois Municipal Retirement Fund are each committing $100 million.

One of the fund’s main strategies is to invest in big ticket mezzanine loans. The manager has the ability to underwrite whole loans, using multiple funds or accounts. It can sell a senior portion of the loan and hold the mezzanine to hit target returns, which were in the region of 12-13 percent for its predecessor fund.

Blackstone is broadening its investment remit by geography and hired more investment professionals in Hong Kong, Australia, Mexico and Canada. 

The acquisition of real estate portfolios from GE Capital in June helped Blackstone add scale to its debt business. The firm agreed to purchase performing first mortgage loans in Mexico and Australia for $4.2 billion for its BREDS programme, as part of a $23 billion transaction between Blackstone, Wells Fargo and GE. 

BXMT, Blackstone’s publically-traded commercial mortgage REIT, purchased a $4.6 billion portfolio of first mortgage loans primarily in the US with Wells Fargo providing the financing.

The firm also bought $475 million in commercial real estate debt assets from a joint venture between GE and Mubadala, an investment company owned by the Abu Dhabi government. Also in June, Blackstone hired Jonathan Pollack from Deutsche Bank as chief investment officer of its real estate debt business. Pollack reports to Mike Nash, global head of BREDS.

BREDS II reached a first closing in April 2013 and a final close of $3.3 billion of commitments. The manager also raised two separate accounts alongside it, bringing total capital for the fund to $4 billion.

According to the Blackstone website, the firm established the platform in 2008 in response to the dislocation in the global real estate and credit markets. BREDS provides liquidity to new borrowers, banks with legacy commercial real estate exposure and liquid real estate debt investments.

It had $9.7 billion of assets under management, as of 30 September 2015. 

The firm targets mezzanine debt, refinancings involving highly valued assets financed with excessive leverage that require restructuring, legacy debt investments on a discounted basis, listed equity and debt securities and preferred equity.