Blackstone leads global surge in property investment

Blackstone’s real estate business raced past the €200bn asset mark for the first time in 2018 in a surge that helped the New York-listed group keep its crown as the world’s largest property landlord for a third year.

Real estate has enjoyed a bull run lasting almost a decade but rising property values and huge investor inflows have fuelled fears of unsustainable pricing bubbles in some markets.

Assets managed by Blackstone’s property arm jumped by almost a quarter to nearly €202bn ($231bn) last year, according to an annual ranking by Inrev, the European association that represents investors in non-listed real estate vehicles.

Kathleen McCarthy, co-head of real estate at Blackstone, said “property valuations today mean we have to work hard to find good deals” but she was confident her unit would continue to deliver attractive risk-adjusted returns to investors.

“Our large real estate investment team, access to proprietary information and capacity to do deals that other managers cannot, help us to create value for our investors in any economic environment,” she said.

Four themes have been targeted for further investment: logistics where ecommerce businesses are increasing demand for warehouses; so-called innovation cities such as Seattle where tech companies need office space; rental housing in regions where there are supply shortages including the US west coast and Spain, and hospitality assets in order to meet the expected global increase in spending on travel.

Blackstone has created five “permanent capital” real estate investment vehicles that do not have a fixed expiry date unlike traditional closed end funds.

“Permanent capital vehicles allow Blackstone to hold real estate assets over a longer term which helps investors to compound returns,” said Ms McCarthy.

Toronto-based Brookfield, the number two ranked player, saw its property assets increase 27 per cent last year to €164bn, while PGIM, the investment arm of US insurer Prudential Financial, retained third place after its property assets jumped 39 per cent to €148bn.

The three groups have a clear lead over the next two players which joined the exclusive club of managers with property assets of more than €100bn for the first time.

Nuveen Investments (previously TH Real Estate) moved up one spot to fourth place after its real estate assets reached €109bn, up by a fifth, while Texas-based Hines, another privately owned real estate managers, slipped to fifth in the ranking after its property assets grew 14 per cent to €104bn.

“The concentration at the top is becoming more obvious with the 10 largest managers accounting for about 40 per cent of global real estate assets,” said Henri Vuong, Inrev’s director of research and market information. “Consolidation is still happening as more managers have ambitions to become global players and mergers and acquisitions offer the quickest route to meeting that objective.”

Investors put a record €162bn of new money into real estate in 2018 in spite of worries that suitable opportunities to deploy capital are becoming more difficult to find. Pension funds accounted for just over a third of the new capital while insurance companies doubled their allocations to real estate compared with 2017 and sovereign wealth funds also increased their commitments to property markets.

The combination of record fundraising and price gains pushed the value of worldwide real estate assets under management to an all-time high of €2.8tn at the end of 2018, up 12 per cent on the €2.5tn the previous year. Property assets under management globally have more than tripled from the post financial crisis low of €900bn reached at the end of 2009 as real estate has become more widely entrenched in the portfolios of institutional investors.

“Institutional investors are still looking very favourably on property as an asset class even though we are late in the cycle. The knowledge and expertise developed by pensions funds and insurance companies about real estate over the past decade has helped to sustain inflows. Family offices and wealthy individuals are also becoming more important as new sources of capital,” said Mr Vuong.