Blackstone cautions on lower property returns

Blackstone, the world’s biggest private equity fund, told investors to dial back their expectations for property returns as the "great run" of the past five years becomes harder to replicate.

They should "calibrate" their expectations, Chris Heady, Asia Pacific chairman and head of Asian real estate, told a conference in Singapore on Tuesday. "They’re probably going to be lower over the next five years."

At the same event, Singapore’s sovereign fund GIC, an investor in world real estate from student housing to logistics, said that elevated prices were constraining its investment as it sold assets that had gained in value.

Global investors struggled to find high returns in the wake of the financial crisis amid interest rates languishing near record lows and bouts of elevated volatility in the stock and bond markets. While property offered an alternative, higher real-estate prices in places such as Hong Kong, London and New York dimmed the allure.

Blackstone had $102bn of real estate under management in the first quarter after taking advantage of high valuations by exiting assets including $6.7bn of property. That included parting with a 25% stake in Hilton Worldwide Holdings, real estate in London, office properties in Sydney and Japanese residential real estate.

GIC, which invests Singapore’s foreign reserves, is one of the biggest real-estate owners among sovereign wealth funds. It partnered in 2017 with Canada Pension Plan Investment Board and US real-estate operator Scion Group to invest in a $1.6bn portfolio of US student housing.

Lee Kok Sun, GIC’s MD and chief investment officer for real estate, told the Singapore forum that about 7% of GIC’s portfolio had been in real estate, less than the targeted allocation of 9% to 13%. As a "disciplined investor", GIC sold some assets that had increased in value.

"But selling properties while trying to raise the allocation was like running "faster and faster" on a treadmill, Lee Kok Sun told the Asia Pacific Real Estate Association event.

GIC said in July that a key measure of returns across asset classes fell to 4% in the 20-year period ended March 31 2016.

Bloomberg