Blackstone Group LP is refunding some performance fees earned during the commercial real estate boom, the first time fund investors have clawed back cash from executives at the private-equity firm.

Blackstone and some of its managers returned $3 million in carried interest to investors in Blackstone Real Estate Partners International LP during the second quarter, a person with knowledge of the payments said. They may pay back an estimated $15.7 million this quarter to another fund, Blackstone Real Estate Partners IV, according to the person and a regulatory filing.

Blackstone's property buyout funds recorded performance fees totaling $1.74 billion, some of which was allocated to the firm's partners, as the market for office towers, hotels and apartments soared from 2004 to 2007. Prices have slumped about 39% since then.

"The acute situation for clawbacks is when you have had a very successful period of gains and then the remaining deals don't do well," said Michael Harrell, co-head of the private funds practice at the New York law firm Debevoise & Plimpton LLP.

"That is what happened when the Internet bubble burst, and there is certainly the potential for that with the sharp downturn in the real estate market," Harrell said.

Private-equity funds, which raise money from institutions including pensions and endowments, pay a share of profits from investments, usually 20%, to the firm and its investment managers.

If the fund's remaining holdings suffer a permanent decline in value, clawback provisions can require the executives to rebate cash distributions in order to prevent their share of profits from exceeding the 20%.

Blackstone's repayments were included in an Aug. 6 regulatory filing that didn't name the funds.

Blackstone's $38.7 billion purchase of Sam Zell's Equity Office Properties Trust in February 2007 marked the pinnacle of a bubble inflated by easy financing.

The firm sold $60 billion of real estate assets before the market slumped in 2008 its chief executive, Stephen Schwarzman, said during a July 22 conference call with analysts, according to a transcript.

Profits from some of those sales have helped Blackstone's funds outperform rivals.

The carried interest paid on the profits also exposed Blackstone managers to possible clawbacks when the market fell and dragged down the value of the remaining holdings in their funds. Potential clawbacks at the firm's property funds more than tripled to $299.8 million last year from $77.2 million at the end of 2008, according to regulatory filings. The figure shrank to $280.3 million at the end of June this year.

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