Jul 18, 2013 MARKETS
Blackstone Preparing to Unleash a Flood of Real-Estate Selling
By Craig Karmin
For years Blackstone Group BX +1.80% has been one of the world’s biggest buyers of real estate. With its securities filing on Thursday outlining plans to take its retail-property company public, the private-equity firm begins a phase where it is likely to be one of the biggest sellers, too.
Blackstone raised more than $24 billion from its last two real-estate funds, the most ever raised for funds of this kind. Most of that money has been invested or committed to every sort of real estate available — from suburban U.S. office buildings to distressed European property debt to single-family homes in Florida.
But unlike real estate investment trusts or sovereign wealth funds, which can hold onto favored properties indefinitely, private-equity shops have to return capital to investors. While Blackstone regularly trims its holdings, analysts now expect the firm to enter what could be its most active sales period since 2007, when it unloaded in just a few months more than half the 543 buildings it acquired from Sam Zell’s Equity Office Properties.
Blackstone executives said on an earnings call Thursday that the company expects to accelerate real-estate sales in the next 18 months. That could result in some of the largest real-estate IPOs in years.
The company’s securities filing for Brixmor Property Group, which owns 522 shopping centers and nearly 87 million square feet, said the company was looking to raise $100 million.
But that figure is viewed merely as a placeholder required for the filing and the target amount will likely be much higher. Blackstone values the business around $13 billion, according to people briefed by the firm.
Blackstone has said that Brixmor is the largest wholly-owned shopping center portfolio in the U.S., and the private equity firm has spent hundreds of millions of dollars upgrading some of the centers to help attract anchor tenants like Wal-Mart WMT +0.96% and TJ Maxx. Brixmor also recently hired a new president and chief financial officer, Michael Pappagallo. He was previously the chief operating officer at shopping center REIT Kimco Realty corp.
Blackstone is also expected to tee up Hilton Worldwide, which it acquired for $26 billion including debt in 2007, for an IPO by the end of next year. While that investment faced initial struggles, it has looked much better in recent years as the economy stabilized and hotel improvements paid off.
The private equity firm has also assembled an industrial real estate company IndCor Properties that controls more than 80 million square feet of warehouses, distribution centers and other industrial property. Analysts say Blackstone could sell shares in that company to the public by end of 2014.
Meanwhile, Blackstone continues to shed smaller, less centrally-located office properties it held onto from the EOP deal. Rival real estate fund managers say they expect Blackstone to start marketing portfolios of its office more prominent office buildings in California, Boston and New York by next year.
Commercial real estate values are nearly back to their 2007 peak, so now isn’t a bad time to sell. Blackstone’s challenge will be to pull off all these sizeable deals in a relatively short period of time. That could be especially tricky if interest rates start to rise and the REIT market encounters another sell-off, as it did in the second quarter.