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Blackstone’s Debt Business Has $9B To Lend, And This Is Where It Wants To Put It

There is a flurry of change underway at Blackstone’s real estate debt business, with new leaders in place for its flagship mortgage trust and its European property lending arm. 

As the pandemic ebbs, new opportunities are arising to lend the more than $9B (£6.4B) of dry powder that Blackstone’s $47B lending division has available. After the Global Financial Crisis, debt markets stayed frozen for more than two years. After the coronavirus-induced recession of the past 16 months, they are already liquid again. 

Leisure hotels, logistics and life sciences on both sides of the Atlantic are at the top of the list for new deals, Blackstone Mortgage Trust Chief Executive Katie Keenan and Blackstone Real Estate Debt Strategies European Head Steve Plavin told Bisnow

Bank vault

For Keenan, who has taken over from Plavin as chief executive of Blackstone’s listed $18B mortgage trust, the recovery in the U.S. economy as businesses reopen across the country is feeding through to increased real estate transaction activity, which in turn is leading to increased lending opportunities. 

“We had a big first quarter coming out of the gates and we have a strong pipeline today,” she said. “We’re seeing good activity across the sectors, in multifamily, industrial, life sciences, areas where we as a firm have great insight and information.”

Blackstone Mortgage Trust lent $1.7B in the first quarter of 2021, a 33% increase on the first quarter of 2020. Industrial was the biggest sector, followed by multifamily and life sciences; just 8% of its lending was in the office sector. 

One sector not represented in that first quarter, but where both Keenan and Plavin see big opportunities, is the hospitality realm.

“The hotel space is interesting, it is offering real value,” Keenan said. “We’re big believers in the post-Covid travel recovery, and you’re already seeing that in some markets, particularly on the leisure side. More transactions are happening, and as a lender we are looking at how we can leverage that recovery. Spreads are still wider in that sector than pre-Covid.”

Blackstone's Katie Keenan

Plavin said he also sees opportunity in industrial and believes the growth of the nascent European life sciences sector is providing a big moment to lend on both development and acquisition of existing schemes. Europe accounts for about 35% of Blackstone’s debt portfolio, he said, and he expects it to be a good source of new deals.

“We’re providing aggregation facilities for active sponsors looking to build logistics businesses,” Plavin said. “You have investors who are buying assets at a smaller individual deal size, and we are providing multi-asset facilities that can grow as the sponsor grows. That’s how we built up our logistics and industrial platforms.” 

Blackstone is still an active lender in the office market, and Keenan and Plavin said the big urban centres in which it lent before the pandemic in the U.S. and Europe are still likely to see office demand for good assets, although Plavin added the firm is of course trying to estimate the impact more prevalent working from home might have on demand. 

Retail is trickier, Keenan said, and while Blackstone Mortgage Trust might be willing to lend against high-quality retail assets that had stable cashflows for the past few years, in sectors like grocery-anchored retail, more generally “we don’t want to take extra credit risk, regardless of return.” 

The trust’s Q1 report said it had $1B of dry powder available to lend, while Blackstone’s group Q1 results showed that its unlisted debt funds have about $20B of existing loans and another $8B available to lend, much of that in Blackstone’s fourth debt fund, which raised $8B last summer. Blackstone’s unlisted debt funds have provided an internal rate of return of about 11% over their life, the same set of results showed.

Blackstone's Steve Plavin

Mortgage REITs were one of the very few areas where distressed opportunities arose quickly during the early months of the pandemic: Mortgage REITs managed by TPG and Colony Capital were recapitalised by Starwood and Goldman Sachs, respectively. While liquidity has returned to the market, shares in Blackstone Mortgage Trust still trade below their pre-pandemic level. 

Keenan argued that the sector as a whole had performed well in the circumstances, though some business models proved more robust than others.

“We run a model where we are very focused on our funding matching our assets," she said. "If you look now, all of the companies in the sector have seen their portfolios perform well and have capital available to lend.”

Keenan is a huge rarity in the real estate sector, as a female CEO of a listed company. She said she did not know if there is a structural reason why there are so few female leaders in real estate, but she offered some advice for anyone, male or female, looking to make it to the top.

“Find an area of the industry that you love and find people that you want to work with,” she said. “Find as many opportunities as you can to learn about different parts of the industry and to form relationships. Even as a 23-year-old coming out of college, build relationships, and over time, many of those people will end up being people you get a chance to work with, do deals with and invest together."