Blackstone has provided almost $4 billion of loans across most property sectors in the UK and continental Europe since the onset of the covid-19 pandemic, through its Blackstone Real Estate Debt Strategies platform. Now, the US investment giant is assessing lending opportunities as European markets gradually emerge from lockdown measures.
Last week, Blackstone announced that Steve Plavin, formerly the chief executive of listed credit vehicle Blackstone Mortgage Trust, based in New York, has taken over as the senior managing director overseeing BREDS in Europe, and will relocate to London this summer. He has replaced Michael Zerda, who Real Estate Capital revealed in April is to rejoin LaSalle Investment Management to lead its European debt and special situations business.
Over the past decade, BREDS has grown to become one of the largest businesses within Blackstone’s portfolio, as well as one of the largest non-bank real estate lenders active in Europe. It currently has $30 billion of assets under management, up from $10 billion five years ago, of which 34 percent relates to European real estate.
From his New York office, Plavin caught up with Real Estate Capital to discuss his plans for the credit platform.
Where do you see the lending opportunity in Europe?
For our debt business, we pursue the same high-conviction investment themes that we like for our equity strategies. We see good opportunities in logistics and life sciences and expect a strong recovery for leisure hotels. We own almost everywhere we lend across Europe. Our large ownership footprint is our greatest strategic advantage as a lender, which helps us respond quickly with conviction to borrower requests.
When lending to offices, we focus on assets backed by strong sponsors and in markets where there is dynamic tenant demand from growing sectors, such as technology, life sciences and content creation. For hotels, we expect a strong bounce back in leisure assets, which is an important business segment for us. As the travel industry reopens, we believe there is going to be pent-up demand from those who have not vacationed for a long period.
Is European dealflow improving?
Since we benefit from transaction activity in the market, the opportunity set we see is a function of property owners looking for loans either when they are buying properties or when they feel capital markets have improved so they can refinance their assets with lower cost debt than what they have in place. As markets recover, we expect transaction activity to pick up. We are already seeing this in parts of the US, and we expect Europe to follow suit.
Do you see an opportunity to refinance borrowers that have previously relied on bank capital?
Yes, our capital is efficiently priced so we can compete with banks, particularly for properties that are in transition or are under renovation or development.
Do you see an opportunity to buy non-performing loans?
It is difficult to predict when and how this opportunity might arise. A strength of our debt platform is that when there are off-the-run and special situations opportunities, we often get a great look given our capacity to underwrite large portfolios across jurisdictions.
How does the European lending opportunity compare to that in the US?
There are great lending opportunities in both regions but the fact that the markets in Europe are less efficient than in the US creates great opportunities for us. The scale of our equity and debt businesses is so important because it enables us to access a dealflow in Europe that others may not see or have access to. Although in the US, the dealflow is more regular, we find great opportunities to finance off-the-run deals in Europe so, in part due to our experience in the US, we are able to identify lending opportunities in Europe at an early stage.
How do you see the European lending opportunity evolving in the next couple of years?
A lot of capital has been raised and is waiting to be deployed in opportunistic and core-plus real estate investment vehicles. I expect those funds will invest portions of their capital in Europe, which we expect will create new lending opportunities for us.