Blackstone raises $3bn for Europe fund

The New York-based private equity real estate firm is in the final stages of closing its third European real estate fund, Blackstone Real Estate Partners Europe III. The firm is also raising a distressed real estate fund led by former Merrill Lynch Americas real estate head, Mike Nash.

The Blackstone Group is in the “final stages” of closing its latest European real estate fund on $3 billion (€1.95 billion), the firm’s president and chief operating officer Tony James said today.

Unveiling the New York-based private equity real estate firm’s second quarter earnings, James said Blackstone had enjoyed a “very successful” fundraise for Blackstone Real Estate Partners Europe III, revealing that to date it had closed on about $3 billion. The fund is the firm’s 10th real estate fund overall and follows on the back of Blackstone Real Estate Partners VI, which closed in April on $10.9 billion – the largest amount ever raised for a dedicated real estate vehicle.

James said Blackstone was focusing on distressed real estate assets and distressed sellers of real estate, but warned during the conference call that the firm would wait to buy in the US, arguing it “will be cheaper later.”

He said the volume of real estate deals had been generally quiet, with most activity in Europe and Asia, but in response to analysts’ questions he added that in the US Blackstone was “really sitting on the sidelines right now because we think prices are going to come down. Anything that we buy now will be cheaper later.”

Blackstone has also set up a distressed real estate debt fund, headed by senior managing director Mike Nash. As chief investment officer of Blackstone Real Estate Special Situations Advisors, James said Nash was identifying “huge” opportunities in the debt space with “many promising equity-like returns.” Nash was former head of Merrill Lynch’s Americas real estate principal investment group until 2007.

James went on: “Prices have adjusted but not yet to the degree we believe they will. Our strategy in this environment is to wait for sellers to adjust their expectations to the new reality or have their hands forced by their own liquidity crises. Our real estate funds are young and we can afford to be patient.”

Blackstone today posted a second-quarter net loss of $156.5 million compared with profits last year of $774.4 million, largely made before the company went public in the summer of 2007. Real estate revenues fell $14.4 million in the three months to June 30, 2008, compared with the same period in 2007 when the firm made $315 million. The firm said the main driver of the fall was a “modest reduction in the net carrying value of the real estate managed funds.” Real estate assets under management rose to $19.2 billion.

James also said Blackstone had put teams in place to raise a US and European developed infrastructure fund, as well as a separate fund for investments in cleantech and renewable energy. Although the cleantech fund has not yet commenced fundraising, Blackstone has already agreed to two significant investments in the sector, including a deal to invest more than $1 billion in a large-scale wind farm project off the coast of Germany.