Blackstone (NYSE: BX) has successfully raised $8 billion for a commercial real estate debt fund, matching the record set by the firm in September 2020. The fund, which took about two years to raise, will operate in North America, Europe, and Australia, marking a key development in the recovery of the commercial real estate sector.
Key Highlights:
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Fund's Role: This fund is crucial for nonbank lenders, which became more prominent after the global financial crisis, when banks significantly reduced their exposure to real estate risk. These debt funds are now pivotal in the recovery of the commercial real estate market.
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Capital Raising Challenges: Despite the challenges of raising capital amid rising interest rates since 2022, Blackstone successfully secured the necessary funding. Commercial real estate remains a highly leveraged sector, and higher debt costs generally reduce property values.
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Market Context: In the fourth quarter of the previous year, global real estate fundraising by private-equity firms hit a five-year low at $10 billion, according to Preqin. Blackstone took longer to raise this fund compared to the one closed in 2020, but the commercial real estate market is showing signs of recovery in 2024.
Fund Strategy and Activities:
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Investment Strategy: The fund began investing in late 2023, focusing on property loans and purchasing existing loans. It often partners with banks, assuming the riskier, higher-yield portion of the debt.
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Targeting Debt Issues: The fund is designed to address challenges faced by borrowers and lenders. It is acquiring loans from banks and insurance companies aiming to reduce their real estate debt portfolios, particularly loans made when interest rates were lower. For properties with expiring loans and declining values, the fund is stepping in where lenders are hesitant to refinance.
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Fund Details: The fund, Blackstone Real Estate Debt Strategies V, manages $77 billion in assets and employs over 170 professionals globally. It has flexibility in its investments, including global scale lending, liquid securities, structured solutions for financial institutions, and corporate credit.
Market Recovery:
- Debt Markets: There has been an improvement in debt markets, with the issuance of commercial mortgage-backed securities nearly tripling in 2024 compared to 2023.
- Sales Activity: Sales activity has increased, providing more clarity on property values.
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