Busy year for them, after acquiring Gramercy for 7B and GLP for 18B.
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They are closing big deals left and right
I was going to post on this earlier. The deals are huge, but what is the long term strategy? Betting huge on Amazon and Walmart? It would be interesting to get the take of anyone working on the deal or that has insight into the space. Is there a competitive process between other PE companies for these mega deals?
I think if its not blackstone, then it is getting divided up and sold.
Blackstone loves taking down huge portfolios.
I worked on the financing for a 96 property portfolio when BX acquired Gramercy and I am now currently working on financing a 137 property portfolio for BX's acqusition of GLP. Logistics is their highest conviction global investment theme today and after the GLP transaction they became the largest industrial owner in the country and outbid Proligis and Brookfield in the GLP deal.
The strategy is buy the shit out of everything because they have the lowest cost of capital and most funds.
It's "Blackstone's" investment strategy. Buy it, fix it, and flip it. Buy portfolios (wholesale), fix up any issues (deferred maintenance, leaseup, etc.), and then sell (retail).
I put it in quotations as BX thinks they coined this phrase, but it's used across the board when talking to RE professionals.
Yeah, i hear that, but this sounds dated tbh.. if you look at a company's holdings, and they aren't distressed or there isn't something else going on, i feel like they would sell at market cap rates almost across the board. You may find some ugly ones, where the better ones make up for it, but i have a hard time believing there is significant alpha you will find in a portfolio purchase from a sophisticated seller, simply because the market is so hungry they dont need to. They could hit the same returns, at the asset level, by selling chunks off at a time.
The only value i see is in lower transaction costs - maybe, time - maybe.. etc.
Blackstone made a killing with the strategy on the office portfolio before the recession, but many of the buyers who took it off their hands were burned.. the alpha came from them knowing they had a buyer who would take an office at a premium relative to what they paid.
Buyers may take these assets off their hands in a year or two at a premium shoudl the market continue to be hot, but the 'strategy' is not as sound as I think it was before because they dont have the buyer's willing to pay a premium lined up, or else the seller would have identified them...
Also, at the asset level, how much value can you add here? Is the only way to create outsized returns (~15%+ IRR at the asset level) just buying this and hoping the market will continue to heat up, in an already ultra hot industrial/logistics space, so basically, hoping someone will pay a premium?
Also, going into this whole thing, how did the seller think of the exit? Basecase scenario would be a REIT exit i assume? Its the only way to recapitalize an equity value that high... unless they went in thinking, 'we're going to build this portfolio, and the market will be so hot, not only will Blackstone, prologis bid, but Brookfield will now be at a place where they can bid on it too, and they will have conviction that they can add little value and sell to someone else in a year or two or five etc..'
Would be interesting to get inside color on how these IC's are viewing these massive plays.
When they are purchasing a portfolio like this, its a couple of different funds acquiring the properties. For their GLP transaction I noticed that their opportunistic fund was acquiring 115MM sf for $13.4BN through BREP VIII and BREP IX, and their income‐oriented non‐listed REIT was acquiring 64MM sf for $5.3BN. Some of the properties have IG rated tenants and some properties are vacant or have well below market rate rents. So there were core properties and value add plays in both the Gramercy and GLP deal.
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As Brody kind of eluded to - its a cost of capital situation, whereas Blackstone has several different funds which they allocated these portfolios across. It's like a Procrustean bed of sorts... which gives them an advantage in a competitive process.
Also, it's bigger than the single transactions. I've transacted with Blackstone on one of these mega deals and although the portfolio must be cohesive and jive with their strategy, they're thesis is monopolizing markets and creating synergies. Think of it like moving the spread in betting.
Blackstone has effectively manufactured a feedback loop whereas: industrial rates are increasing --> Blackstone purchases large, synergistic portfolios in markets experiencing highest growth --> Blackstone raises rents across all their properties since they have reached the scale necessary to be a market mover. They are in a position to consistently increase rents in some markets just because a confluence of their scale and supply/demand dynamics in the industrial sector.
On a smaller scaler, it is comparable to what Clarion has done in the Denver market.
The guys at Colony got severance packages a couple weeks back incase the buyer didn’t want to keep them on. Knowing that Blackstone doesn’t need an operator I imagine many of them are dusting off the resumes right about now.
how do you know this to be true?
I know several people that work in Colony’s industrial group.
Why wouldn't they need an operator? They and all institutional LPs like this typically go in with a management group..?
What do you mean they got severance packages? Colony exited the whole industrial business , right? So yeah, if you mean these guys are looking for work, i guess you're right
Blackstone manages some (most at this point I think) of its real estate.
They are not a traditional LP. They operate as an LP in some cases and wholly owned investor in other instances. Similar business model to a Clarion or a Carlyle.
There is another thread that discusses this more thoroughly somewhere.
There were three groups looking to buy Colony. Two groups were LPs that would have needed to JV with an experienced operator. Starwood was one of the groups, and I can’t remember the other. Blackstone was the third group, and they do not need an operator as they handle all the asset management in house. A couple weeks back Colony Industrial gave letters to their employees outlining their severance package if one of the buyers were to carve out the platform and just keep the real estate. To sum it up, this was in case Blackstone was the buyer as everyone would be basically out of a job if they were picked. From my understanding, Colony’s corporate team ended up making the buyer decision (they are pretty far removed from the Industrial platform) and picked Blackstone last week. I don’t know a lot of the details, but from what I’ve heard this left a bad taste in the mouths of a lot of the senior people.
The younger guys I know aren’t really worried about it. There’s plenty of places in Dallas where they can easily slot into an analyst position. The ones more concerned are the VPs and up. It’s a lot harder for those guys to find jobs and move around, but I think Nuveen is still building out their industrial platform in Dallas. I wouldn’t be surprised if a couple of guys land there given Graydon Bouchillion’s background at Colony. There’s also a smaller group that is low key building out an industrial platform in Dallas right now, and I think some guys will land there as well.
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