By Pranav Sethuraman, JLL’s Global Capital Markets team
U.S. private equity firm Blackstone Group announced last week the close of the largest ever commercial real estate fund, a sign that investors are still eager for exposure to property markets over a decade into the current cycle.
The fund – Blackstone Real Estate Partners IX (BREP IX) – has amassed US$20.5 billion of total capital commitments, despite an increasingly tight real estate market.
While Blackstone’s fund is massive, it’s only the latest in a busy year for real estate fundraising. In the first six months of 2019, fundraising by private closed-end real estate funds recorded its highest ever first-half level at over US$80.3 billion.
“Although prices are elevated across many global markets, fundamentals remain sound, underwriting is disciplined, debt levels are generally modest, and investors remain keen to access the sector,” says Pranav Sethuraman from JLL’s Global Capital Markets Research team.
In this environment, a convergence, or ‘redefinition’ of traditional risk and return classifications in the sector is likely with core investors moving up the risk curve in an effort to meet return targets.
Still, sourcing deals remains challenging at this stage in the cycle, with record levels of dry powder sitting in funds. At the mid-year mark, firms had $331 billion of unspent capital.
“Current pricing, and competition make it harder for managers to deploy capital,” says Martijn van Eldik, Head of Funds Advisory, JLL Asia Pacific.
Global real estate investment volumes hit US$341 billion in the first half of 2019, down nine percent from the same period last year, according to JLL.
A dip was widely expected after 2018 marked the highest investment volumes since 2007. Contributing to the drop has been some restraint among investors, who are contending with a slowdown in global economic growth, political upheaval, and a changing retail landscape.
Ken Caplan, Global Co-Head of Blackstone Real Estate said that despite the challenging investment environment, the group “continues to see compelling opportunities around our highest conviction investment themes. BREP IX’s scale allows us to commit capital globally in a differentiated set of complex transactions.”
In June, BREP IX committed to its initial investment, the purchase of GLP’s U.S. Logistics Assets for a total of US$19 billion, alongside other Blackstone vehicles.
Blackstone has been very active in real estate fundraising in recent years, with $154 billion of investor capital under management.