Blackstone ( BX) is taking over the management of a portfolio of Asian real estate investments from Bank of America Merrill Lynch ( BAC) in a deal that will provide a platform for the private-equity group to do more property deals in the region.

The deal, disclosed in a letter Blackstone sent its investors on Friday, is another sign of the retreat of both banks and former investment banks from the business of running real estate and corporate private equity funds.

The real estate portfolio has a value of about $2 billion, excluding debt, and consists of a mix of properties, some of which Merrill Lynch invested in directly from its balance sheet before its merger with Bank of America and others bought by Merrill funds with outside money.

Blackstone will help unwind the Merrill portfolio and will not acquire any assets from it.

"Sponsoring real estate investment will not be a core business for Bank of America Merrill Lynch," the bank said, adding: "We will continue to be the general partner of the fund and an investor in it."

The deal comes after Citigroup's ( C) recent sale of its real estate investment operations to Apollo Management. Some so-called "captive" real estate funds owned by banks have performed so poorly that other firms are not planning to raise more money.

However, Blackstone sees a recovery in the value of its investments in both the U.S. and Europe.

"We have seen stabilization in our high-quality office portfolios and experienced a solid recovery in cash flow in the hotel assets in our portfolios," Blackstone said in the letter. "As a result, these improvements led to our first asset valuation increases in several years."

Blackstone has recently been a big investor in distressed real estate at home, buying Extended Stay Hotels with Centerbridge Partners and helping to recapitalize mall operator General Growth.

It bought Hilton Hotels in 2007 and recently bought back the hotel chain's debt at a substantial discount to its face value.

Blackstone has told investors it expects all its real estate funds to show profits at the end of their investment term.

That contrasts with the property funds of groups including Goldman Sachs ( GS) and Morgan Stanley ( MS).

Blackstone sold about $60 billion of property at the peak years for the real estate market of 2005, 2006 and 2007 and refinanced the properties it bought at the time. It was also was careful to avoid cross-collateralising assets, a practice that hurt many rivals.

Blackstone declined to comment.
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