The Blackstone Group L.P. (NYSE:BX) has purchased the motel chain, Motel 6, today from a French hotel giant. The deal cost the private equity firm just $1.2 billion. The acquisition adds to the large portfolio of hotel chains already owned by Blackstone.
In October of 2007 the company purchased Hilton Worldwide for $26.9 billion. That deal marked the high point for both the real estate market and the private equity market. Blackstone has continued to add to its portfolio of hotels, purchasing Mint Hotel last year for $1.1 billion.
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Blackstone is no stranger to investment in real estate. The firm is currently actively seeking opportunities in the area. The company’s most recent real estate fund, its seventh, raised $10 billion in funding in just a year. That fund supplied the money for the acquisition of the motel chain. In February the company said it would continue to seek funding for that fund up to around $12 billion. That would make it the most valuable fund ever.
Blackstone is interested in real estate and they are good at it. Its ability to attract funding is incredible when compared with its peers. Morgan Stanley (NYSE:MS) started funding for a new real estate fund earlier this year with a target of $1 billion. Private equity firms seem to be doing well in the real estate market and they’re heading for it in droves.
Commercial real estate has been a particularly attractive investment for private equity. The length of time that money is locked into these funds gives managers confidence that commercial real estate will have recovered in the time before the funds mature. The funds are also likely to be active in a period of mid to high inflation brought about by the practices of the Federal Reserve.
Real estate is noted to perform particularly well in inflationary economies. Private equity companies are taking advantage of a fairly safe play with the expectations of high returns. The faster the real estate market recovers the faster Private Equity firms will benefit from their bet.
The expected recovery in the real estate market is anything but sure and the macroeconomic situation demands close and careful attention in order to ensure recovery in all aspects of the economy. Even after the 2008 financial crisis, which was driven by real estate, the investment is still seen as comparably safe by investors. Private Equity is betting big on commercial equity and Blackstone is betting bigger than anyone else. With seven funds focused in the area the company is putting a great deal of money on the line.