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Blackstone May Reach $100 Billion in Core Real Estate

Blackstone Group LP may have $100 billion of low-risk real estate under management in a decade as the firm expands beyond distressed properties, Chairman and Chief Executive Officer Stephen Schwarzman said.

“The core-plus asset class is about three times the size of what we’re doing in the opportunity class,” Schwarzman said today on the New York-based company’s second-quarter earnings call. If Blackstone can continue to generate strong returns, “you could look at a business like this over a 10-year period and have $100 billion under management.”

Core real estate includes high-quality, well-leased properties such as prime office buildings, apartment towers and shopping malls. Core-plus refers to similar assets that might need a little extra work to boost values. Blackstone aims for net returns of 10 percent to 12 percent with core-plus real estate, Schwarzman said.

Blackstone, the largest private-equity real estate investor, has begun raising its first core-plus fund and expects to gather more than $5 billion in the next year, Schwarzman said. The firm has amassed about $2.8 billion in separately managed accounts for the strategy, President Tony James said on the call.

Blackstone manages about $80.4 billion of total real estate assets, which includes about $10 billion of debt.

Core real estate represents the vast majority of the almost $29 trillion in global property investments, according to CBRE Global Investors, a unit of CBRE Group Inc.

Global Fund

Property investors flocked to core assets after the financial crisis in search of yields better than government bonds with less risk than opportunity funds, which use high levels of debt to help generate returns.

Blackstone next year plans to raise a new global real estate fund that’s likely to be larger than the current $13.3 billion Blackstone Real Estate Partners VII, Schwarzman said.

The BREP VII fund’s equity -- already closer to $16 billion with co-investment from fund clients and the ability to recycle a portion of proceeds from investments that are sold -- probably will increase, Schwarzman said.

“At our current investment pace, we’d likely be back in the market with our next global fund early next year,” he said.

Blackstone has raised $4.4 billion for its first Asian real estate fund, putting it on pace to reach its $5 billion goal.

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