Why Blackstone Group Spent $1.6 Billion In Asia

Private equity giant The Blackstone Group L.P. BX has demonstrated a huge appetite for global real estate assets -- including residential rentals.

Invitation Homes, the Blackstone single-family home-for-rent operating unit based in Texas, has invested about $8 billion and owns over 40,000 homes -- the largest portfolio in the U.S.

Blackstone announced in July 2014 that it had purchased 18 apartment buildings in Spain for $171 million to enter that Western European market.

A Much Bigger Entrance

Blackstone has raised about $4 billion in capital for its initial Asian specific real estate fund.

On November 20, the firm announced that it had kicked off its Asia residential portfolio in a huge way by purchasing from General Electric Company GE its 100-percent owned GE Capital Japan residential real estate business for $1.6 billion (190 billion yen).

The business consists of more than 200 properties containing more than 10,000 residential units spread across four major Japanese cities: Tokyo, Osaka, Nagoya and Fukuoka. Blackstone feels that it is purchasing both high-quality assets and an existing well-managed business.

Real Estate Has Been Driving Blackstone Earnings

Blackstone has enjoyed phenomenal success in the sector. Its latest fund, Blackstone Real Estate Partners VII, which raised $13.4 billion in 2012, reported a net internal rate of return of 27 percent as of the end of September.

The Blackstone real estate business overall accounted for about 45 percent of the profits earned by the firm during the third quarter of 2014.

Related Link: Private Equity Quarterly Performance In Context: A Look At Blackstone

GE Deal Driver

Francois Trausch, chief executive officer – Asia-Pacific at GE Capital Real Estate, said, “This transaction supports our global strategy to reduce our equity book as we continue to build our global debt operations."

GE Capital Real Estate is a leading commercial real estate company, with global assets of $36 billion and debt and equity activities in North America, Europe and Asia-Pacific.

Different Asia Strategies

Alternative asset firm The Carlyle Group LP CG has recently raised $3.9 billion for its fourth Asia Buyout Fund. This brings Carlyle assets under management (AUM) in Asia funds (including Japan) to approximately $13.6 billion.

However, the Carlyle focus has not been on Asian real estate assets. Instead its funds have invested in sectors such as financial, telecom, consumer goods and healthcare.

Additional competition for Asian assets comes from KKR & Co. L.P. KKR. The firm completed a $6 billion equity raise for its second Asia Fund in 2013. KKR recently announced it was backing an Asia hedge-fund. Feng Hsiung's Hong Kong-based Acion Partners Ltd. will start a pan-Asia event-driven hedge fund in the first quarter of 2015, investing in equities and credit according to a September 28 Bloomberg report.

Tale Of The Tape

Investors interested in diversifying their portfolio by increasing exposure to European and Asian real estate assets would be well served by putting Blackstone Group on their radar screen.