In a move to boost purchasing power, the Blackstone Group is all set to close a $20 billion dollar private-equity real estate fund, the firm's largest to date. The fund will essentially triple investor buying power, according to the news.
Factoring the debt to equity ratio of three to one, the new Blackstone fund will possess immense bargaining power. According to the Wall Street Journal, most funds use $2 of debt for every dollar of equity, which means that the new fund has about $60 billion in buying power. This figure is more than the combined commercial trades in Chicago, New York, Chicago, and San Francisco throughout most of 2018. Michael Stark, co-head of the global advisory firm and placement agent Park Hill Real Estate Group, told the WSJ:
“If you have to deploy billions of dollars over a three-year investment period, it’s very inefficient to do it in $10 million chunks."
The new Blackstone fund, which is more than double the amount any competitor has ever raised, is expected to close in Q1 of 2019. Blackstone garnered investments from the U.S. and overseas pension funds, foreign from governments and high net-worth individuals, in order to amass this gigantic amount. Given the predictions, property prices may soon plummet, some experts are concerned the fund may buy in at an inopportune time. But if Blackstone plays the massive sums wisely in a buyer's market, the long term payoff could be massive.
It should be noted here, that Blackstone's "opportunistic" real-estate funds have delivered annual average net returns of 16% over the past 27 years. Win or lose, the $20 billion fund will give the investment firm massive influence over the prices paid for commercial property world-wide.