Blackstone Prefers China’s Warehouses Over Residential

The head of alternative investment giant Blackstone finds China’s warehouses more interesting than luxury apartments, and just might be in the market for office buildings or shopping malls.

Stephen Schwarzman, chairman and CEO of the US-based private equity firm was in Beijing last week and had a few views on the market.

“Industrial warehouses in China are very interesting, and are set to benefit as Internet and retail sales increase,” Schwarzman told the China Daily. “So are office buildings and shopping centers,” he added.

While not going so far as to say there was a bubble in the residential market, Schwarzman pointed out that “The imbalance of China’s real estate among different classes and regions is interesting,” and added that the Chinese residential real estate could become volatile and called it “the least interesting among the nation’s real estate sectors.”

Blackstone Teams with Vanke for China’s Logistics Market

Schwarzman’s remarks seem to confirm earlier statements about Blackstone’s intention of investment ing China’s logistics real estate sector. In April, a senior official from China Vanke announced that the Shenzhen-based developer is holding discussions with the private equity giant about setting up a real estate fund to pursue opportunities in China’s logistics real estate sector.

The rapid expansion of China’s retail industry, particularly the boom in ecommerce, has fueled demand for international grade logistics properties, and warehouse development has drawn significant investor interest in recent months, particularly from investment funds attracted by the sectors comparative high development yields of 8.5 to 9 percent.

In late May Dutch pension fund asset manager APG Asset Management committed up to $650 million to acquire 20 percent of China warehouse developer and operator e-Shang, and to set up a joint venture with the Warburg Pincus-backed startup. In February, a Chinese consortium invested $2.51 billion into leading regional logistics developer Global Logistics Properties (GLP). Carlyle Group and Sam Zell’s Equity International also have committed capital to the sector within the last year.

Jeffrey Schwarz, the head of leading logistics developer GLP, has gone on the record predicting that investment of up to $2.5 trillion may need to be spent on land and warehouses over the next 15 years to meet the growing demand for warehouse space.

More Commercial Commitments on Way from Blackstone?

Schwarzman’s comments on the commercial real estate sector appear aligned with some of the company’s existing investments in China, including $400 million that it put into a southern Chinese mall developer last year.

In November the private equity giant Blackstone agreed to buy a 40 percent stake in mall developer SCP (formerly known as SZITIC Commercial Property Co).

However, despite the financier’s apparent skepticism regarding residential, during January this year Blackstone acquired Hong Kong-listed Tysan Holdings, paying HK$1.64 billion ($211.5 million) for 65.5 percent of the shares, and later topped up its shareholding to 71 percent. Hong Kong-based Tysan is specialises in luxury retail and has extensive projects on the Chinese mainland.

Schwarzman was in Beijing last Thursday to participate in the US-China Consultation on People-to-People Exchange. Last year Schwarzman set up a $300 million scholarship fund at Beijing’s Tsinghua University in a move that was widely seen as effort to build ties with China’s government officials.