New York: Blackstone Group LP cemented its position as the world’s biggest private-equity investor in real estate with a global buying spree that includes General Electric Co. assets and a California-based shopping-center owner.
The agreement to buy GE real estate assets valued at $23 billion (Dh85 billion) in a joint deal with Wells Fargo & Co. is the largest real estate transaction since the financial crisis and among the biggest for New York-based Blackstone, whose purchases include the record $39 billion acquisition of Equity Office Properties Trust in 2007 and the $26 billion takeover of Hilton Worldwide Inc. the same year.
“This transaction clearly demonstrates the unique scale and reach of our real estate platform,” Jon Gray, global head of real estate for Blackstone, said of the GE deal in a statement.
Also today, the firm said it agreed to buy shopping-center owner Excel Trust Inc. for $15.85 a share in cash, or about $2 billion, in one of the two biggest investments to date in its expansion into stable, well-leased real estate. The purchase of San Diego-based Excel will be made with the firm’s new Blackstone Property Partners fund. Four other units of Blackstone’s real estate division are involved in the GE purchase.
Gray, 45, has built Blackstone into the largest global real estate investing business among private-equity firms, overseeing $81 billion in assets as of December 31. Its seven previous global property funds have doubled their invested capital, with annualised returns of 18 per cent after fees since 1994, according to the most recent earnings statement.
‘Forceful reminder’
Blackstone’s GE deal “is another forceful reminder of its unique ability to do large, complex, global deals that no one else could pull off as handily or at all,” said Michael Knott, a managing director at property researcher Green Street Advisors. “Their impressive track record gives confidence in how they will perform, even if it looks on the surface like a top-of-market deal due to its huge size.”
Shares of Blackstone rose 2.1 per cent Friday to $40.02, a record. Real estate has been the company’s biggest contributor to revenue and profit in recent years.
In the GE deal, Blackstone units will acquire the conglomerate’s US holdings, mainly suburban office buildings in Southern California, Seattle and Chicago, for $3.3 billion, along with a $4.6 billion portfolio of commercial mortgages. The firm also agreed to buy European assets including office, industrial and retail properties, for 1.9 billion euros ($2 billion) and commercial mortgages in Mexico and Australia for $4.2 billion.
Rising values
The US properties are being purchased with the firm’s new Blackstone Real Estate Partners VIII fund. It’s the first deal for the global pool, which is set to reach about $16 billion. Bargains have become harder to find as investors around the globe seek places to put money amid low interest rates, driving up property values. Commercial real estate prices in the US are 6.9 per cent above their 2007 peak, Moody’s Investors Service reported this week.
Blackstone plans to integrate the European properties into its Logicor industrial unit and its Multi retail business. Those purchases are being made by Blackstone’s European real estate fund.
The $4.6 billion of commercial mortgages are being acquired by Blackstone Mortgage Trust Inc., a publicly traded real estate investment trust. The portfolio, which will double the company’s asset base, consists of 82 first mortgage loans backed by commercial property in the US, Canada, the UK and Germany, according to the statement. Wells Fargo agreed to provide $4 billion in financing for the purchase.
The mortgages in Mexico and Australia are being acquired by Blackstone’s roughly $4 billion real estate debt fund.
Core Properties
Since the end of 2007, the year Blackstone went public, its real estate assets under management more than tripled. After scooping up US shopping centres and warehouses from distressed sellers in 2010 and 2011, the firm in 2012 started to buy up thousands of foreclosed homes to rent out, while also expanding in Europe and Asia. In December 2013, it began muscling into the largest province of global real estate, known as core property. Core signifies high-quality, fully-occupied real estate with steady income and low risk.
Blackstone is buying what it calls core-plus properties, ones that require light renovations or leasing up to generate slightly higher returns than basic core. By moving into the realm of core real estate, Blackstone is competing with established leaders in that strategy such as JPMorgan Chase & Co. and Morgan Stanley.
Blackstone in February agreed to buy a roughly 50 per cent stake in six New York-area office buildings valued at $4 billion from RXR Realty in what was its biggest expansion yet in core- plus. Last year, when the firm began raising the core-plus fund, it estimated it would have about $4 billion in the strategy by the end of 2014.
Management moves
The growth in Blackstone’s real estate business triggered executive changes at the division last December. Frank Cohen and A.J. Agarwal, senior managing directors, moved to oversee the core-plus effort globally and in the US, respectively, from their previous roles co-heading American acquisitions for the firm’s higher-return opportunity funds.
Tyler Henritze and Nadeem Meghji were elevated to co-heads of US acquisitions for Blackstone Real Estate Partners. In addition, Ken Caplan, the former head of European real estate, was promoted to chief investment officer for the unit, making him No. 2 to Gray. Anthony Myers took over Europe from Caplan.
