Blackstone favors industrial realty

Selective options to help PE giant tap investment opportunities in sectors like mobile Internet

Global alternative asset manager Blackstone Group LP likes commercial and industrial real estate in China and regards residential property as less interesting, its chairman and CEO told China Daily on Thursday.

"Industrial warehouses in China are very interesting, and are set to benefit as Internet and retail sales increase," said Stephen Schwarzman. "So are office buildings and shopping centers."

Schwarzman, in Beijing to attend the fifth annual US-China Consultation on People-to-People Exchange, said Chinese residential real estate has the potential for volatility and regards it as "the least interesting in the nation's real estate sector".

He added that real estate markets vary across China. "The imbalance of China's real estate among different classes and regions is interesting," said Schwarzman.

A decrease in value of some real estate assets and the shortage of credit from banks have created opportunities for Blackstone to purchase good assets from developers and other sellers.

Schwarzman said his company specializes in buying very large properties, as liquidity and capital can be difficult for some competitors, but these conditions provide a terrific advantage for Blackstone to buy at favorable prices.

"The long-term prospects for the Chinese real estate market are quite good, but it's normal in a certain period of time for the value of some properties to go down and at some time later to become stable again," he said.

Schwarzman said China is still growing very quickly compared with most other countries, and mentioned that some people seem overly concerned about China's growth.

"The perception of China's slowing economy can keep other investors away, and we look at the same situation and think that's an opportunity," he said.

Schwarzman said that if a country undergoes economic reforms, many business opportunities will be generated, and so it goes in China.

He said that his company has just finished a deal in China's healthcare sector but declined to release the name.

Blackstone Group LP, with Chinese technology consulting and outsourcing firm Pactera's CEO and other managers, took that company private last October in a deal in which Blackstone paid $539 million.

"There are many good opportunities in China, and you have to be selective," Schwarzman said. "For instance, the mobile Internet brings revolutionary changes to the world, and the situation is more obvious in China".

By March 31, Blackstone had $272 billion in assets under management, and its net profit in 2013 totaled $3.5 billion.

Blackstone Group acquired Hong Kong-listed Tysan Holdings on Jan 3, paying HK$1.64 billion ($211.5 million) for 65.5 percent of the shares. It increased its shares in the property developer on Jan 7-8 to 71 percent.

In addition, Blackstone purchased 40 percent of Szitic Commercial Property Co Ltd, one of China's largest shopping mall developers and operators, SCP said in November.

To cope with China's growth surge, as much as $2.5 trillion may need to be spent on land and warehouses over the next 15 years.

According to Jeff Schwartz, co-founder of Global Logistic Properties Ltd, the biggest foreign builder of logistics facilities in China, "over the next 15 to 20 years, the real cost of building warehouses is going to be staggering."

That has drawn the attention of private equity firms like Blackstone Group and Carlyle Group LP as they seek to benefit from an anticipated investment boom.

BIO

STEPHEN A. SCHWARZMAN

Stephen A. Schwarzman is chairman, chief executive officer and co-founder of The Blackstone Group LP. Schwarzman has been involved in all phases of the firm's development since its founding in 1985. The firm is a leading global asset manager with $272 billion in assets under management as of March 31.

Schwarzman is an active philanthropist with a history of supporting education and schools. Whether in business or in philanthropy, he has always attempted to tackle big problems and find transformative solutions.

In 2013, he founded an international scholarship program called Schwarzman Scholars at Tsinghua University in Beijing to educate future leaders about China. With funding of $350 million, the program is modeled on the Rhodes Scholarship and is the single largest philanthropic effort in China's history coming largely from international donors.

Schwarzman is a member of the Council on Foreign Relations, the Business Council, the Business Roundtable and the International Business Council of the World Economic Forum.

He serves on the boards of the Asia Society, the New York City Partnership and the School of Economics and Management at Tsinghua University.