Blackstone preps real estate IPOs

22 10월, 07:59www.crainsnewyork.com

 

Blackstone Chief Executive Stephen Schwarzman is eager to sell the company's more lamentable investments. Photo credit: Newscom

 

 There is a lot of "smart money" on Wall Street, but none smarter than Blackstone Group. Here's one example: Back in 2003, the private-equity giant bought car-parts maker TRW Automotive for $4.7 billion in the largest leveraged buyout since the 1988 deal for RJR Nabisco. This past summer, Blackstone sold the last of its TRW stake, closing the books on a deal that returned more than seven times the firm's investment, Chief Executive Stephen Schwarzman (above) happily told investors on a conference call last week.

 

 But even smart guys make mistakes. In Blackstone's case, it bought lots of real estate during the bubble years. In addition to snapping up scores of apartments and office buildings, it became the largest owner of hotel rooms in the country, paying top-of-the-market prices for Hilton Worldwide and La Quinta Inns & Suites.

 

 As a result, the fund that holds a lot of Blackstone's investments from that time has performed a lot worse than the firm's other vehicles.

 

 Fortunately, help is in sight for Blackstone. The market for initial public offerings has awoken after a long hibernation, and investors seem eager to take some of Blackstone's more lamentable investments off its hands. Blackstone has filed to sell six of its companies back to the public, including Hilton, Extended Stay America and Brixmor Property Group, an apartment owner.

 

 "We're increasingly taking opportunities to exit investments," Mr. Schwarzman said during last week's call.

 

 Yet thanks to some smart analysis by Oppenheimer & Co. analyst Chris Kotowski, it's clear why Mr. Schwarzman is so eager to sell what he can.

 

 The fund that holds many of Blackstone's real estate holdings is called BCP V, and it raised $21 billion in 2005 from pension funds and other major investors. The fund has delivered an internal rate of return of just 5% and generated $6 billion in gains.

 

 In comparison, a $7 billion Blackstone fund from 2002—the one that housed the TRW investment—has generated a 37% internal rate of return and $16 billion in gains. A $2.5 billion energy-focused fund from 2011 has produced a return of 57% in its short life, according to Oppenheimer figures.

 

 Mr. Kotowski estimates that if Blackstone can see $3.2 billion in gains from its 2005 fund's holdings—and successful IPOs would go a long way toward doing that—the BCP V fund could at last start generating the big tax-advantaged profits that make private-equity investing such a lucrative business.

 

 A version of this article appears in the October 21, 2013, print issue of Crain's New York Business as "Blackstone preps real estate IPOs".