Blackstone Gives Pricey Canadian Energy and Property Thumbs Down

(Bloomberg) - Canada’s energy assets are uneconomic and real-estate markets overvalued, making them less attractive for investment than in the U.S. and elsewhere, according to Tony James, president of Blackstone Group LP., the world’s largest alternative-asset manager.

“Canada has not been a prime market for us,” James said in an interview with Bloomberg TV Canada’s Pamela Ritchie at a conference in Toronto Wednesday.

While Blackstone is on the hunt for energy assets, Canada’s industry might be left out of the private equity firm’s sights because of a lack of pipeline capacity and the cost of production, he said.

“The U.S. has a developed pipeline network and it’s near the big markets,” he said. There are some fantastically productive basins in the U.S. where investors can produce and make money even with oil at $20 a barrel and gas at $3, he said. "There’s not many up in Canada at those prices that make economic sense.”

James said in March he believed energy would be the most active sector for dealmaking this year. About a third of dealmaking done by the New York-based firm is in the energy sector, he said.

Canadian Property

“Obviously, a lot of the world is pretty highly valued but energy is not,” he said. “I worried three months ago that we might be a little early, now I worry the window might be too short and we might have missed it.”

Real estate, which is Blackstone’s biggest business, is also unattractive in Canada compared to the rest of the world, James said.

“Canada is not a real estate market we love," James said. "Prices are pretty full, yet it’s much easier to have more supply.”

Currency volatility because of the economy’s ties to natural resources also makes it less attractive for investment, he added.

“When you add that all up, the risk and return isn’t as good as the U.S.,” he said.

Blackstone hasn’t been particularly active in Canada with only a handful of equity investments and mergers and acquisitions total $1.2 billion, according to data compiled by Bloomberg. Those investments included most recently acquiring a minority stake in Stornoway Diamond Corp. last year for an undisclosed sum.

Partners Abroad

It has, however, invested alongside Canadian pension funds and money managers elsewhere, including the $5.3 billion purchase of New York City’s Stuyvesant Town-Peter Cooper Village with Ivanhoe Cambridge Inc., the real estate arm of Canadian pension fund Caisse de Depot et Placement du Quebec.

The difficulty some find accessing capital in Europe is making that market more attractive to invest in, James said. Blackstone is also busy building warehouses in China to support its soaring Internet-based economy while India has become the hottest market for office space, he said.

Blackstone has $344 billion in assets under management. Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.


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