Blackstone’s property loan fund raises $900 mn in Korea, beating funding target

  • 2016-08-25

Blackstone, the world’s largest real estate investment firm, has attracted 1 trillion won ($900 million) from South Korean institutional investors for its $4 billion real estate lending fund, which is expected to produce about a 6% annual return, according to investment banking sources on August 23.

National Pension Service and Korea Investment Corporation have committed $300 million and $150 million, respectively, to the real estate lending fund of Blackstone, the third of its kind. The Public Officials Benefit Association, a savings fund for local government officials, has also invested $50 million in the fund. Other investors include Kyobo Life Insurance ($30 million), KB Insurance ($30 million) and Construction Workers Mutual Aid Association ($20 million). In addition, Korea Teachers’ Credit Union, Military Mutual Aid Association and MG Non-life Insurance participated in the fund for undisclosed sums.

In total, they will put 1 trillion won into the fund, surpassing the U.S. asset manager’s original fund-raising target of 800 billion won ($712 million) from the country.

The third real estate lending fund of Blackstone will invest in senior and subordinated loans of core real estate in major cities, including those in the United States and Europe. The fund was marketed as a real estate “mezzanine fund” in South Korea.

“In the U.S., about 80% of property loans are provided by funds, not by financial institutions,” said one of the sources. “Blackstone is a qualified asset manager with over 100 trillion won in real estate assets, so domestic institutional investors showed strong interest (in the fund).”

Foreign pension funds and institutional investors, including the teachers’ retirement fund of Pennsylvania in the U.S., also has invested in the fund which will be terminated in 2025.

The new fund raised this year is expected to deliver more than a 6% return a year on a steady basis, while carrying lower risks than direct investment in real estate assets. The good performance of its predecessor funds has also kindled interest in the fund. The second real estate lending fund of its kind, for which Blackstone raised $3.5 billion in 2013, has produced about a 9% internal rate of return a year.

Separately, a real estate “equity fund” that Blackstone sold in South Korea last year, had also raised about 1 trillion won from local insurance companies, including Dongbu Insurance.

“Following the introduction of international accounting standards, long-term, foreign assets are drawing strong interest from local institutions as they are trying to increase the duration of assets,” another IB source said. “In particular, alternative investment products such as those sold by Blackstone are sold out as soon as they come to the market.”

By JiHoon Lee and Daehun Kim 

lizi@hankyung.com

<Edited by Yeonhee Kim>