Blackstone is looking to build its presence and explore more acquisitions in Japan after selling almost $4.5 billion worth in 2022 to capitalize on the global interest in the island country’s property.
The alternative asset manager is working on more acquisitions with multiple bids out and properties, which include hotels and data centers in the pipeline, a recent report by Bloomberg quoted Blackstone’s head of Japan real estate Daisuke Kitta as saying.
This comes after Blackstone spent most of 2022 offloading assets, including selling nearly $1.3 billion in properties to investors like Gaw Capital Partners and GIC, as per Cushman & Wakefield.
Blackstone’s acquisitions team is “finally getting back to business” and their pipeline has grown since spring, Kitta said.
Real estate investments in Japan have been steady compared to other countries, where increasing borrowing costs have reduced financing. The low-interest rates in Japan make the country one of the few developed markets where income generated from real estate assets continues to surpass the cost of borrowing, resulting in healthy interest from foreign investors.
Japan is one of Blackstone’s most active markets in the Asia Pacific region in terms of buying and selling. The asset manager was motivated to resume acquisitions in the country based on the indication that the U.S. Federal Reserve would be slowing down the rate hikes, Kitta said.
Blackstone started private credit operations in Japan and closed on a $30 billion global real estate fund in April. The $1 trillion asset manager also has $8.2 billion in committed capital for another real estate fund in Asia, Blackstone’s latest earning statement has revealed.
According to Bloomberg, the company is likely to deploy $2 billion in Japan in the next five years.
The recent pressure on corporate governance in the country will result in many companies offloading non-core property assets. This becomes a good source of acquisitions, Kitta said. Blackstone has made bids, including for real estate businesses, in deals likely to be up to $1 billion, he added.
Although Japan was slow to reopen its international borders after the pandemic, its recovery-related growth still has scope for improvement and the strong rebound in tourism has been promising, Kitta said.
Hotels are on top of Blackstone’s list, Kitta said. Even though international tourism numbers have not rebounded fully, RevPAR is surpassing pre-pandemic levels.
Blackstone spent nearly $7.5 billion to acquire commercial assets during the pandemic and began selling in mid-2022. Since the end of May 2022, the yen value has declined by over 7% compared to the dollar. Despite the timing, the $4.5 billion in disposals helped Blackstone make money in U.S. currency terms.
Both small local funds and big institutional investors have expressed interest in Blackstone’s Japanese assets. The company is poised to sell an additional $1 billion worth in one to two years, Kitta said.
With $16.3 billion in deal volume, Japan was the most active commercial property investment market in H1 2023, according to MSCI Real Assets.
However, the outlook is based on the actions of the Bank of Japan, which has led to some uncertainty as it has relaxed the yield curve control strategy forcing interest rates to remain below zero. An increase in rates can impact bank financing and freeze the market, Kitta said.
Blackstone’s real estate deals in Japan are structured on average with 70-75% debt, said Kitta. This is backed by a “strong lending market.”
“If banks stop lending, the market would dry up pretty quickly.”