Blackstone raises largest commercial property debt fund with $8 billion haul

The firm, which is one of the world’s largest commercial property owners, took about two years to raise the fund, which will be active in North America, Europe and Australia. Blackstone also raised the only other $8 billion real-estate debt fund, which closed in September 2020.

Debt funds are among the so-called nonbank lenders that formed after the global financial crisis because bank appetite for real-estate risk greatly declined. These funds have taken advantage of some large lenders continuing to be cautious on the sector and are helping fuel commercial real estate’s budding recovery.

Still, raising money for any type of real-estate investment has been tough going since interest rates soared in 2022. Commercial real estate is a highly leveraged business. So when debt costs more, property values tend to be worth less.

Total global real-estate fundraising by private-equity firms that invest in real estate was $10 billion in the fourth quarter of last year, a five-year low, according to data firm Preqin. Blackstone took longer to raise this fund than the one of the same size closed in 2020.

But the commercial real-estate sector is showing signs of recovery so far this year. Debt markets have improved with the issuance of commercial mortgage-backed securities up nearly threefold in 2024, compared with 2023. Sales activity has also picked up, giving the market more clarity on property values.

Blackstone’s latest real-estate debt fund, which started investing in late 2023, makes property loans and buys existing loans. Often, the fund makes loans in partnership with banks, with the banks taking the more senior less-risky piece of the debt and Blackstone taking the riskier, higher-yield piece.

The firm has tailored the fund’s strategy to take advantage of the problems facing numerous borrowers and lenders even as markets recover, said Tim Johnson, global head of Blackstone Real Estate Debt Strategies.

For example, the fund is buying loans from banks and insurance companies that want to reduce the size of their real-estate debt portfolios.

The fund also is getting involved in properties that have expiring loans that were made when interest rates were low. If the property is worth less, the existing lenders aren’t willing to refinance the loan for the same amount.

“That’s not a loan a bank wants to refinance dollar for dollar," Johnson said. “Someone has to step in and fill that gap."

Write to Peter Grant at peter.grant@wsj.com