Private Equity Firms: The Curse of Success

Blackstone’s $14 billion acquisition of GE’s real estate holdings highlights again the concentration of institutional property assets among a relative handful of global private equity players, who mostly trade among themselves, driving up prices.  It also points to how the success of these once swashbuckling opportunity investors has pushed them into acquiring vast portfolios of more core-like holdings well into the later stages of the current real estate cycle.

Credit these major brand-name private equity firms for buying low and selling high in the last cycle, and setting their marker as savvy investment partners for pension funds and other institutions. In the new cycle, the money has poured into these deal-making firms as plan sponsors gravitate to “safe” choices. They made some nice transaction bets early on in the 2009-2010 period and the capital flows have only intensified—their next generation funds just vacuum up billions of dollars in commitments from institutions desperate for yield. For Blackstone it’s no problem plunking down $14 billion to GE or a relatively paltry $1.3 billion for the Willis Tower in Chicago. They are swimming in cash.