The $2 Billion Move – A Guest Post from Llenrock Group
Dec 29, 2015
This post from Tatiana Swedek is part of our Llenrock Group guest post series and originally appeared on the Llenrock Group blog.
This past Tuesday, Greystar Real Estate Partners, LLC, the head honcho of apartment management companies, announced their deal to sell a 32-property multi-family portfolio to Blackstone Group LP for $2 billion.
The portfolio consists of 10,399 units spanning across well-located market metro areas such as Seattle, San Francisco, Los Angeles, Boston and New York. According to Business Wire, the properties are a mix of mid-rise, high-rise and garden-style buildings.
Greystar, who specializes in investment, development and management of rental properties, will continue to oversee all 32 properties. This deal represents about a fifth of the 55,000 units Blackstone owns. Bob Faith, chairman and CEO of Greystar, told press:
“We are very pleased with the outcome of the transaction and believe the level of interest this portfolio generated is a testament to our core competency of sourcing underperforming assets and creating value through operational improvements and comprehensive capital renovation strategies.”
New York City based Blackstone has been expanding by acquiring residential properties for two years now. This past October, Blackstone acquired Stuyvesant Town and Peter Cooper Village, single-family units located throughout Manhattan, for a mere $5.3 billion.
CRE and Multi-family Industry Trends:
Is Blackstone heading in the right direction by jumping into the pool of multi-family residential properties?
This is indeed a bold move. Many analysts worry that multi-family properties are becoming overheated.
However, this particular deal may be a safe bet due to a few factors.
Home-ownership is increasingly becoming more delayed as young professionals flock to cities and rent apartment building units. Mitch Roschelle, partner of the U.S. real estate advisory practice with PwC, attributes the sustained performance of the U.S. real estate industry to “accelerating urbanization, demographic shifts and the impact of distributive technological advancements.”
There is also a major trend of CRE firms beginning to view affordable housing in the multifamily market as what CoStar calls a “promising area for financial arbitrage.” In response to climbing apartment rents and a notable shortage of affordable housing units, increased government spending is expected in this particular area and you can bet CRE companies are reacting to this market shift. According to Robert Sheppard, head of newly established CBRE Affordable Housing, “affordable housing portfolios have matured and become larger, creating market demands for sales, refinancing and recapitalization.”
CoStar notes Blackstone’s October purchase of Stuyvesant Town-Peter Cooper Vilage, which includes 5,000 affordable to moderate income units, a prime example of CRE firms moving towards this market.
On behalf of Greystar, Faith explained:
“We have had a run, but I don’t think anybody has suspended the law of supply and demand. There are still a lot of good reasons to believe we’re going to continue to chug along in multifamily.”
Supply and demand is a huge factor in determining whether this decision is profitable on Blackstone’s behalf or not. Although levels of supply in the case of multi-family may be higher in some markets, the factors of urbanization and young professionals’ change in lifestyle and economic choices creates a greater demand for these multifamily properties.
Blackstone also has an advantage: the properties in this portfolio are diverse in both structure and location. Where there is competition, there is growth and it appears that Blackstone takes that at face value.
