Blackstone, which last week formed a structured finance group that brings Blackstone Real Estate Debt Strategies together with the firm’s other asset-backed platforms, is hoping to transfer what it learned as it scaled its real estate debt business to other areas of the structured finance market.
The expansion comes as the New York-headquartered manager has been rapidly increasing the amount of capital it deploys on behalf of insurance companies, Jonathan Pollack, global head of Blackstone’s Structured Finance Group, told affiliate title Real Estate Capital USA.
Pollack, who moved into this role from his previous post as global head of BREDS, said the decision to launch the structured finance group also stemmed from Blackstone’s desire to further scale its lending platform across all asset-backed markets, including real estate, consumer finance, transportation, trade receivables, fund finance and digital infrastructure.
“The real estate finance business grew up inside of the overall real estate business and the scale we were able to achieve was really instructive for us and formed a great blueprint for thinking about the rest of the asset-based finance world,” Pollack said. “Having asset finance pulled together will give us increased access to transactions at a time when we are really starting to invest a lot more insurance company capital.”
Blackstone’s work on behalf of insurance companies has been growing, with the firm announcing last week a partnership with insurance company AIG. In January, it acquired Allstate Life Insurance Company for $2.8 billion in a significant move into the insurance sector.
“After taking into account those two deals, we will have around $150 billion of insurance company assets,” Pollack said. “That growth has been substantial over the past couple of years. We are scaling in those channels, and we concluded that we can be better and achieve more scale by putting them adjacent to our real estate debt businesses.”
Lower capital costs
The structured finance group will be able to provide more sources of credit and liquidity to different asset classes. “Are there opportunities to serve a specific client? Yes, but I think also just generally bringing a lower cost of capital to the consumer, and particularly to companies that are more asset-heavy,” Pollack said. “It broadens their ability to borrow and provides greater liquidity and reduced cost of capital.”
For real estate, things will stay unchanged. That said, Pollack identified a potential benefit. “I think there will be a benefit in the broadening of our experiences – the more things we see, the more we find opportunities, the more we learn about new areas where our capital can provide value on behalf of our investors. I think having additional finance disciplines that are happening next door to our real estate finance business will deliver advantages all around.”
Digital infrastructure is one place where there are natural synergies and where Blackstone has made a number of new investments as a firm, including a $10 billion transaction to take data centre company QTS Realty Trust private in June.
“The asset-based team has done some digital infrastructure investing and I think some of that really crosses over into real estate, especially around data centres,” Pollack said. “We’re excited about the areas where we can find client and asset opportunities that become more apparent under this new structure.”
Johnson promoted to head BREDS
Tim Johnson, the global head of originations at BREDS, will step into Pollack’s shoes as global head of BREDS. Rob Camacho will continue to lead the firm’s investment activities in asset-based finance, while Mike Wiebolt, who oversees the real estate group’s liquid securities, will take on additional responsibilities for asset-backed securities.
“Tim [Johnson] is now fully in charge of the day-to-day residential and commercial real estate lending activities,” Pollack added.
The creation of the group means that Blackstone will be adding staff as it scales this platform, Pollack said. “We have a really great team today and we expect to grow that. Some of that is purely down to what it means to be a direct originator. You need to have the resources to be on the front lines, sorting through deals and capturing that primary market premium rather than waiting for people to show up with broadly syndicated opportunities. The objective is to build up the team to the point where we’re really directly originating, and scale is important for that.”