Blackstone Real Estate Debt Strategies is planning a first close on its latest real estate debt fund by as soon as the end of the year.
The private equity giant is preparing to hold a first close of around $1.5 billion on BREDS III according to an exclusive report by Real Estate Capital sister title Private Debt Investor.
Blackstone declined to comment on the fund-raising.
Real Estate Capital reported in September that BREDS, led by New York-based Mike Nash, is seeking $4 billion for follow on high-yield debt fund BREDS III.
US pension funds the Pennsylvania Public Employees Retirement System and Illinois Municipal Retirement Fund are each committing $100 million.
The fund series’ main strategies include investing in transitional assets and big ticket mezzanine loans. The manager has the ability to underwrite whole loans, using multiple funds or accounts. It can sell a senior portion of the loan and hold the mezzanine to hit target returns, which were in the region of 12-13 percent for its predecessor fund.
BREDS II invested in loans in the US and Europe but Blackstone is broadening its geographic investment remit for fund 3 and has hired more investment professionals in Hong Kong, Australia, Mexico and Canada as well as the US and Europe.
The acquisition of real estate portfolios from GE Capital in June helped Blackstone add scale to the debt business. The firm bought performing first mortgage loans in Mexico and Australia for $4.2 billion for its BREDS programme, as part of a $23 billion transaction between Blackstone, Wells Fargo and GE.
BXMT, Blackstone’s publicly-traded commercial mortgage REIT, purchased a $4.6 billion portfolio of first mortgage loans primarily in the US with Wells Fargo providing the financing.
The firm also bought $475 million in commercial real estate debt assets from a joint venture between GE and Mubadala, an investment company owned by the Abu Dhabi government. Also in June, Blackstone hired New York-based Jonathan Pollack from Deutsche Bank as BREDS’ chief investment officer. Pollack reports to Nash, global head of BREDS.
BREDS II reached a first close in April 2013 and a final close of $3.3 billion of commitments. The manager also raised two separate accounts alongside it, bringing total capital for the fund to $4 billion.
The speed of the first close for the third fund is a reflection of the success of the BREDS platform, established in 2008, as well as investors’ continuing enthusiasm for investing in property debt. BREDS had $9.7 billion of assets under management, as of 30 September 2015.
In Europe BREDS is headed by Rob Harper who four months ago recruited Michael Zerda from Lasalle Investment Management’s debt business as a new managing director. Zerda, who left Lasalle this week, joins BREDS in London on 29 February.
Other managers’ 2013/2014 vintage European-focused high-yield debt funds have been successfully invested this year, and another round of capital raising for debt is about to get underway.