Blackstone in $1 bn mezzanine debt fundraising; Korean govt officials’ fund to invest $50 mn
Jan 16, 2017 (Gmt+09:00)
Blackstone Group has attracted New York State Teachers’ Retirement System (NYSTRS), US insurer MIRAS and a South Korean government employees’ fund to its latest real estate debt fund in which the private equity giant is aiming to raise $1 billion.
The new fund, reportedly Blackstone Real Estate Debt High Grade, will buy senior mezzanine debt secured by commercial real estate with a focus on North America, betting on higher US interest rates. The New York-based firm is known to pitch the fund with target returns of 5~7% a year.
The Public Officials Benefit Association (POBA), a South Korean savings fund for government employees, has recently decided to commit $50 million to the fund, according to investment banking sources on Jan. 13. The investment amount will be finalized upon approval of the association’s investment review committee within this month.
NYSTRS will commit $200 million to the fund as an anchor investor of the first batch of the fundraising. MIRAS is known to have confirmed the commitment of about $40 million to the fund. South Korea’s insurance companies, including Hanwha Life Insurance Co. Ltd. and KB Life Insurance Co. Ltd., are reportedly considering investing in the fund.
The world’s largest private equity firm plans to complete the first-round fundraising for the amount of $600 million in the first half of this year.
Blackstone began the fundraising around the end of last year as US interest rates has been on the rise. In the wake of the election of Donald Trump and the Fed’s rate hike late last year, the yield on five-year US Treasuries, the benchmark for US mortgage rates, has climbed to 1.9% a year from around 1% last summer. Higher interest rates dent returns for subordinated property debt holders, but give room for further gains to senior debt holders.
“We cannot help but favor senior loans and mezzanine-type investment which bolster stability and improve profitability, for the time being,” said a source of a Korean savings fund which is contemplating investing in the latest Blackstone fund.
Real estate debt strategy funds have attracted keen interest because of strong performance in recent years. In 2016, North America-focused real estate funds raised a total of $53 billion, dwarfing the $22 billion raised by Europe-focused funds in the same period, according to Preqin.
But local institutional investors contacted by the Korea Economic Daily showed a cautious attitude toward the new real estate debt fund of Blackstone. They said it seemed difficult for the new fund to drum up as strong interest as its prior funds did, citing growing uncertainty over the US interest rate policy and US real estate under the new administration of Donald Trump.
Vogo Fund, a domestic private equity firm, is marketing the fund in South Korea. It also acted as a placement agent for last year’s real estate debt fund of Blackstone.