(Reuters) - Blackstone Group LP named Jonathan Gray to its board on Friday, elevating the co-head of its real estate business at a time when the private equity giant’s latest real estate fund looks set to surpass a fundraising record.
Blackstone Real Estate Partners VII, part of the business that Gray oversees, has surpassed the $10 billion mark and is likely to reach $12 billion by the time it closes in February next year, a source familiar with the situation said.
Blackstone’s previous real estate fund raised $10.9 billion, which was also a record for real estate, the source said.
Blackstone spokeswoman Heather Lucania declined to comment on fundraising. The Wall Street Journal earlier reported the fund’s status on Friday.
Gray, 42, is seen as the force behind Blackstone becoming one of the world’s largest owners of commercial real estate. Blackstone’s real estate arm is active in nearly every major sector of commercial real estate, owning offices, warehouse and distribution centers, shopping centers and hotels.
The business has added to the company’s profits especially at a time when private equity business has been slow and prompted rivals in the industry to follow suit.
Real estate contributed $1 billion towards Blackstone’s reported 2011 economic net income of $1.4 billion, a measure of the firm’s profitability. This is despite real estate making up just a quarter of the firm’s $166 billion assets under management as of December 31.
The firm’s fund-raising power for real estate investments comes in stark contrast to the overall lack of appetite institutional investors have shown for private equity real estate investment. According to a January survey by Preqin, which tracks private equity fund-raising, the level of private fund commitments is the lowest in two years.
Only 36 percent of the investors surveyed said they were likely to commit to real estate funds through January, according to the survey released on Friday. That’s down from 45 percent in January 2011 and 47 percent in January 2010.
“If you look at the real estate businesses, the economic net income, they have been the biggest contributor to ENI over the past couple of years,” Sandler O‘Neill analyst Michael Kim said. “That just reinforces the success that they have had as well as the growth of that business over the last few years.”
Gray’s addition to the private equity firm’s board increases the number of directors to eight. He is also the youngest executive member of the board, possibly putting him among candidates to eventually take the top job at the private equity firm.
Other Blackstone executives on the board include Steve Schwarzman, the firm’s 65-year-old co-founder and chief executive; Tony James, Schwarzman’s anointed successor and 61-year-old chief operating officer; and Tom Hill, the 63-year-old head of the firm’s hedge funds group.
Gray joined Blackstone in 1992 and became a senior managing director in 2000. In 2005, he was named co-head of real estate.
Under his leadership, Blackstone became the largest owner of hotels in the world, engineered the biggest real estate acquisition with its $20 billion buy of Equity Office Properties, and raised the biggest real estate fund so far.
Blackstone clinched last year’s biggest buyout thanks to its real estate arm, when it bought 600 U.S. shopping malls from Centro for $9.4 billion. Centro, one of Australia’s high-profile victims of the 2008 global financial crisis, had run up a heavy debt load with an ill-timed expansion into the United States.
At the end of last year, Blackstone also bought 82 suburban office properties in the Midwest and southern United states for $1.06 billion.
Shares of Blackstone on Friday closed up 2.4 percent at $15.98 on the New York Stock Exchange.
Reporting by Ilaina Jonas and Greg Roumeliotis in New York; editing by John Wallace and Gerald E. McCormick