Blackstone's property star looks to build on real estate empire

Several months later, the US private equity group swallowed Hilton Hotels, paying more than $26bn in the process, despite the fact that the market was already sliding and financing no longer as accessible. Indeed, the market was in such bad shape that it would be more than two years before Blackstone Real Estate did anything at all after the Hilton deal was sealed in July 2007. Meanwhile, almost all Blackstone's competitors imploded. Both Goldman Sachs' and Morgan Stanley's contemporaneous real estate funds are worth almost nothing today.

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Today, Blackstone is the largest property purchaser in the world and the largest property owner in northern California -- and many other places as well. It is building a rapidly expanding business providing finance to other operators, taking advantage of the reluctance of banks to lend for property.

It is now turning to Europe, where it aims to raise a fund worth up to $5bn to exploit the absence of capital and widespread distress, and to Asia where it has raised $1.5bn towards a similar sized fund, investors say.

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Now, one of its fastest growing operations is its real estate debt business. Frustrated that the banks were charging him more for credit lines than he wished to pay, Mr Gray calculated that if Blackstone had a hard time raising money at attractive rates, then every other operator must be having even more difficulty.

Today, the real estate debt business, run by Mike Nash, has $10bn under management. "It is a mini GSO," says Mr Gray, referring to Blackstone's credit business, which has grown rapidly by lending to business turned down by banks. "The failure or retrenchment of many banks, more conservative lending, increasing debt costs and higher capital charges on real estate loans as a result of regulation has created a large opportunity for us," the offer memo for Blackstone's commercial mortgage real estate investment trust states.

Now Blackstone is moving on to apartment complexes, and in mid-August it bought a $2.7bn portfolio of them from a unit of General Electric.

To further lower Blackstone's own cost of funds, it is looking at securitising the cash flows it receives from renting out the $6bn of single family homes it has bought, repaired and leased out.