How Blackstone invests in Asian real estate

Blackstone, the world’s biggest private equity firm with $361 billion under management, has $102 billion in real estate investments. The New York-based manager buys property mainly in the largest economies in Asia, its four core regional markets – Australia, China, India and Japan – but also has some exposure to other markets, such as Hong Kong and Singapore. 

AsianInvestor recently spoke to Chris Heady, Asia-Pacific chairman and Asia head of real estate (pictured left). The full Q&A feature appeared in the December/January issue of AsianInvestor magazine. This is the second of two extracts from that article; the first appeared online last week.

Q  What do you see as attractive real estate investment sectors and geographies in Asia, and where are you particularly active?

A  One of the areas where we’ve been most active regionally is India’s office sector, where we’ve seen significant growth in demand due to the growth of the IT services industry there. We’ve done this in partnership with the Embassy Group in Bangalore and Panchshil Realty in Pune. [For example, it was reported in October that Blackstone plans to list a portion of its India office properties with Embassy Group in a public real estate investment trust.]

In China and Australia, we’ve invested significantly in warehousing to capture the growth in demand [for storage] driven by e-commerce. We’ve partnered with [Chinese developer] Vanke on a China logistics strategy and separately purchased warehouses from the Goodman Group in Australia. [Blackstone is known to have purchased around A$1.1 billion of industrial properties in Australia from Goodman.]

In China, we’ve also been active in the mass-retail, shopping centre sector, to address the demand generated by rising consumption by the emerging middle class. We’ve done this by investing in SCPG, a leading mall operator, a portion of which we recently sold to Vanke. [It was reported that Vanke bought the stake for $1.9 billion in July.]

Another big theme for us has been apartment buildings in Japan.

Q  Are you likely to consider more investments outside the four core markets?

A   There are a number of countries in Asia where we have not invested historically, but we have to pick our spots.

Given the scale of the capital we’re investing, we’ve tried to focus on markets where we feel there will be the largest opportunities that meet our investment criteria, as opposed to going into markets for the sake of diversity. So going forward our investments will largely be confined to the same markets where we have historically been active.

Q  Have you made any investments outside your core markets recently?

A  We completed an investment in an office building in Seoul, though we haven’t historically invested in Korea. The building is Capital Tower [pictured right] and is in the Gangnam area. [Blackstone reportedly bought the property from Korea’s Mirae Asset Global Investments for an estimated W470 billion ($430 million).]

Southeast Asian markets are more challenging for us – as less institutional, smaller scale opportunities – so it’s probably less likely we’d be active in those locations.

Q  As an opportunistic investor in Asia, you might invest in things that others may avoid due to prevailing negative sentiment. Has anything emerged along those lines recently?

A  Definitely. Earlier this year we bought a collection of assets in Singapore from a Malaysian conglomerate, where, as a result of an urgent near-term need to raise capital, we were able to move quickly and secure a $220 million portfolio at what we believe is an attractive price.  

[Blackstone this year reportedly agreed to buy a majority stake in three property assets in Singapore from Malaysian palm-oil producer Sime Darby. They were valued at about S$300 million ($223 million), according to Bloomberg.]

Q  How might Donald Trump’s US election win affect your investment plans in Asia?

A  It’s very hard to predict what the policies of the incoming US government will be. Lower taxes and fiscal stimulus should be good for growth in the US, but on the other hand they could ultimately lead to higher interest rates and inflation.

If you apply that to real estate, assets that are more like bonds – say, very long- lease buildings, with very limited growth in their cashflows – may be more adversely affected in an environment like that. As opposed to, let’s say, assets like hotels, which are more correlated with the underlying economy.

As investors we have to bear that in mind, but at this point I don’t think it’s worth getting too carried away and speculating.

Q   How do you deal with the foreign exchange risk of your assets?

A  We have a fairly diversified pool of currencies, and we’ve invested consistently in those currencies at different times, so we have a natural harmonisation that over time has tended to smooth out the currency moves.

Also, we finance ourselves in local currencies – for instance, we would borrow in Australian dollars and invest in Australian dollars. We don’t mix and match our liabilities.