Blackstone Says Wealth Funds Among Possible Office Buyers

Blackstone Group LP (BX) expects to increase sales of its property holdings in the next year, with potential buyers including real estate investment trusts and sovereign wealth funds, said Jonathan Gray, the firm’s global head of real estate.

Blackstone this year finished raising $13.3 billion for the largest-ever private-equity real estate fund. The company, based in New York, is moving to sell investments from prior funds as it invests its new pool.

“We think the pace of realizations for us will pick up in 2013 and 2014 in our real estate portfolio,” Gray said today at the Bloomberg Commercial Real Estate Conference in New York.

Blackstone is seeking as much as 800 million pounds ($1.27 billion) for Chiswick Park, a west London office development it bought in April 2011 for 480 million pounds. The firm is the second-largest U.S. office landlord through its Equity Office unit, with buildings in markets including San Francisco, Los Angeles, Boston and New York. Its other real estate holdings include shopping centers held through its Brixmor unit, and the Hilton Worldwide Inc. hotel chain.

Blackstone seeks to buy assets at discounts, often during periods of distress, and invest money to improve the properties before finding new buyers. The company may sell some holdings that have stabilized amid increases in occupancy, Gray said.

Institutional Investors

Occupancy across Blackstone’s office buildings has climbed to almost 90 percent from about 80 percent to 81 percent, according to Gray. As occupancy rises to the low- to mid-90 percent range, “we could take it public or sell to a range of institutional investors,” he said.

Well-run REITs are able to borrow in the bond market at low costs, which will aid them in making more deals, Gray said.

“The other trend that will be helpful for us to exit some of the larger things we own, particularly the higher-quality assets in the gateway cities, is the rise of the sovereign wealth fund,” he said. “Sovereign wealth funds are enormous pools of capital around the world” and real estate offers higher yields than government bonds, along with a hedge against inflation, he said.

Blackstone still intends to take Hilton public in the next year or two, Gray said. The company acquired Hilton, the world’s biggest hotel operator, in 2007.

Logical Exit

Hilton President and Chief Executive Officer Christopher Nassetta “has been doing a terrific job,” expanding hotel room count, Gray said. Construction of hotel rooms outside the U.S. has risen about ten-fold, and revenue per available room has increased, he said.

“We’re just sort of getting to the point where we feel like the asset’s going to get appropriately valued,” Gray said. “Over the next year or two we’ll look to probably take a company like Hilton public. That’s the most logical exit, given its size. But we don’t really have any pressure and the business itself is performing quite well.”

Europe also offers opportunity for real estate investment, as banks there sell assets to reduce debt, Gray said. Blackstone also has been buying office buildings in India as other investors flee that market, he said.

To contact the reporters on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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