The Blackstone Deal & 7 Transformative changes in Real Estate Thinking
The Blackstone Deal & 7 Transformative changes in Real Estate Thinking
The Blackstone deal, a 3.8billion dollar purchase that involves 45 high-quality income-producing assets across Australia, ends after a three-month highly competitive bidding process that saw ten first-round bids. This deal was carried out by ESR milestone partnership (EMP), a collaborative venture between ESR and Singapore sovereign wealth fund GIC according to a statement from ESR.
In a follow on from last weeks article Who Will Snare the Beast in Blackstone, Phil Pearce, the chief executive of ESR Australia, describes the $3.8 billion purchase of Blackstone’s 45 industrial and logistics properties by ESR and GIC as “transformational”. Though the term seems overworked, in this case, it is correct. Here are 7 ways in which the black stone deal will transform traditional real estate thinking
1. It will transform thought about commercial real estate: In the e-commerce age, global real estate investors will pay a higher multiple, or in real estate terms, a lower yield, for warehouses than they will pay for office towers or shopping centres.
2. It will transform balance sheets and the funds of management income of a host of real estate investment trusts with logistics properties.
3. It will transform ESR and its partner GIC: ESR and its partner GIC, a Singapore wealth fund, who are already global logistics heavyweights will be transformed into the third-largest owners and managers of the warehouses that support e-commerce in Australia. The transaction is particularly transformative for ESR, already the largest logistics group in the Asia-Pacific region with about $US30 billion ($39 billion) in assets under management, and a Hong Kong listing backed by heavyweights such as Oxford Properties.
4. It will start investors thinking about the relatively higher returns on other sectors like; offices and non-discretionary retail.
5. Logistics tenants will bid up the rents and real estate investors will bid up values: JLL’s head of research in Australia, Andrew Ballantyne, estimates that logistics and industrial assets will deliver real (after inflation) rental growth of 100-130 basis points a year. Blackstone’s senior managing director in Australia, Chris Tynan, says rental growth on logistics properties accelerated in the US, Britain and Canada once online sales exceeded 13 per cent of total retail spending – a figure Australia is fast approaching following the pandemic.
6. The deal will reset prime logistics cap rates: UBS real estate analyst Grant McCasker says the deal will reset prime logistics cap rates with a boost to average prime property valuations of about 15 per cent. All the REITs with logistics exposure benefit, with Goodman Group and Charter Hall the biggest beneficiaries. Chief executive David Harrison says demand is far outstripping supply, and cap rates will keep falling, to less than 4 per cent for premium assets and 4.5-5 per cent for secondary properties.
7. The cash returns on retail and office sectors could start to look relatively more attractive, despite logistics’ stronger rental growth outlook: the cash returns on retail and office sectors could start to look relatively more attractive, despite logistics’ stronger rental growth outlook.
After 12 weeks of work capped by an intense 36 hours with the lawyers, ESR and GIC touched out another Singapore sovereign wealth fund, Temasek subsidiary Mapletree, to emerge with one of the prizes of Australian real estate. GIC, which, according to Real Capital Analytics, was the largest foreign buyer of Australian commercial real estate last year, bought 80 per cent of the portfolio and ESR took 20 per cent along with the management.
Tynan says the sale reflects Blackstone’s “buy fix sell” philosophy, with the portfolio acquired through 28 separate transactions. The group still has more than $10 billion worth of debt and equity positions in Australia and is still buying logistics properties, though with a focus on assets that are close to mass markets and will support last-mile daily delivery.
References:
- Blackstone’s big deal will change traditional real estate thinking
By Robert Harley
- BLACKSTONE SELLING $2.9B AUSSIE LOGISTICS PORTFOLIO TO ESR-GIC PARTNERSHIP
BY MICHAEL COLE
- ESR INKS LANDMARK $3b DEAL WITH BLACKSTONE IN AUSTRALIA
BY DEAL STREET ASIA