Blackstone Buys Apartment REIT Betting $10B on Multifamily
Blackstone is ramping up its multifamily investments, spending $10B to purchase Apartment Income REIT Corp. after a period of moving more cautiously.
Jordan B. & Han-Gwon Lung
April 09, 2024
Together with
Good morning. Blackstone is acquiring AIR Communities for $10B, betting on a multifamily real estate rebound. Plus, movie theaters, facing structural challenges, see rent reductions and must innovate to survive.
Speaking of rebounding sectors. American malls are making a major comeback. This report from Placer.ai analyzes trends driving mall traffic and where consumer behavior is changing.
Market Snapshot
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*Data as of 4/08/2024 market close.
MULTIFAMILY MOVES
Blackstone Betting $10 Billion on Multifamily, Going on the Real Estate Offensive
AIR Communities properties include Flamingo Point in Miami Beach, Fla. PHOTO: AIR COMMUNITIES
Blackstone is ramping up its multifamily investments, spending $10B to purchase Apartment Income REIT Corp. after a period of moving more cautiously.
Bold, bullish bet: The deal, Blackstone's largest in the multifamily sector, encompasses 76 upscale rental housing communities in sought-after coastal markets like Miami, Los Angeles, and Boston. Blackstone has agreed to purchase AIR Communities at $39.12 per share, a 25% premium over its closing price last Friday, and assume all of the debt. The conviction illustrates the PE firm's bullish outlook in the multifamily sector.
The vision: Blackstone is planning to take private the Apartment Income REIT, and inject another $400M to maintain and enhance the portfolio. “AIR Communities represents the highest quality, large scale apartment portfolio we have ever acquired, and is located in markets where multifamily fundamentals are strong,” said Nadeem Meghji, global co-head of Blackstone Real Estate.
State of the market: The commercial real estate market is in its deepest slump since the 2008-09 crisis, with higher borrowing costs driving down values. Office vacancies are at an all-time high due to increased workplace flexibility and the oversupply of new apartments are pressuring rents. This has halved commercial property sales to $359.5 billion over the past year. Some investors are hesitant to re-enter, caught between sellers waiting for rate cuts to boost prices and the fear that values may drop further due to ongoing negative trends.
➥ THE TAKEAWAY
Vote of confidence: Blackstone believes real estate values have bottomed out. The firm’s multifamily investment strategy is part of a broader real estate investment focus, emphasizing sectors like rental housing, data centers, logistics, hospitality, and student housing. This acquisition, financed through Blackstone's $30.4 billion Real Estate Partners X fund, confirms the firm's active approach to seizing opportunities in a distressed market poised for recovery, with a massive $65 billion in dry powder ready for deployment.
TOGETHER WITH PLACERAI
What's Driving the Comeback of the Mall?
Explore the state of malls in 2024 with this data-driven report. Dive in to see where customer behaviors are changing, why malls are returning to pre-COVID levels, how hourly visits have shifted, how experiences are driving traffic, and much more.
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✍️ Editor’s Picks
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Building for the future: Construction costs are slowling down this year, with just 1.29% growth in 1Q24 and 5.85% YoY, matching pre-pandemic levels.
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CMBS resurgence: The CMBS market is seeing high demand despite rising delinquencies, with 2024 issuance predicted to double 2023’s volumes.
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Energy storage surge: Wood Mackenzie reported 90% YoY growth, with the U.S. energy storage industry deploying 8.7 GW, led by California and Texas.
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Yields on the rise: With yields near yearly highs already, bond traders are awaiting CPI data to determine if they stabilize or surpass 4.5%.
🏘️ MULTIFAMILY
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Housing headaches: NY’s Governor Hochul is having a hard time passing housing legislation due to disputes over tax incentives and tenant protections.
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Affordable housing angst: Dallas faces a dire shortage of affordable housing, lacking 33.6K rental homes and 60K for-sale homes for middle-income earners.
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Semiconductor shake-up: Walnut Hill Capital plans to replace a 42.8KSF industrial building in Santa Clara with 284 new apartments.
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DFW's new digs: Conor Commercial's $50M 327-unit Flynn at Live Oak project in DFW, featuring a speakeasy and co-working space, is set to open in 2025.
🏭 Industrial
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Finance feud: A disputed $5.8M judgment between former CA Ventures executives delays Monarch Alternative and Davidson Kempner’s takeover of Centris industrial real estate.
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Industrial innovation: MBK Industrial Properties and Hopewell Development begin construction on Tristar Business Park, a two-building industrial campus in Irving, TX in the DFW area.
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Across the pond: Prologis UK is set to expand a logistics space at Prologis Park Coventry, adding 159KSF and boosting its Midlands assets to £3B.
🏬 RETAIL
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Building brilliance: Miami Beach approved a $39.8M retail project with Whole Foods (AMZN) and Wells Fargo (WFC), spanning 199KSF.
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Discount dilemma: Discount chain 99 Cents Only Stores will close all 371 locations nationwide, liquidating merchandise and fixtures, citing ongoing financial struggles.
🏢 OFFICE
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Taxing struggle: Mayor Wu seeks to raise Boston's CRE tax to alleviate the city’s 25% office space vacancy, supporting residential affordability amidst market decline.
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Mid-market marvel: San Francisco's 117.2KSF 989 Market Street property listed for $12M, an 80% discount from its 2014 purchase price.
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Sky-high drama: Fort Worth's Burnett Plaza is facing $1.6M in liens and a 26.5% vacancy rate after a $137.5M purchase in 2021 by Opal Holdings.
🏨 Hospitality
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Rocketing rates: Space Coast's high-end Westin Resort & Spa Cocoa Beach, with 502 rooms, aims for a $450 average nightly rate.
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Hotel frenzy: A 154-room Hampton Inn & Suites in Maryland’s National Harbor was sold for $47M to Sak Developers.
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NASDAQ-bound: Hotel101, the Philippines-based hotel brand by DoubleDragon Corp., merges with JVSPAC Acq. Corp. for a NASDAQ listing at a $2.3B equity value.
MOVIE MAGIC
Movie Theaters Are Reinventing Themselves to Stay Relevant
Source: WSJ
U.S. movie theaters, once on the brink of becoming relics, are finding an unlikely hero in their peculiar real estate features.
Rethinking space: The cost to transform movie theaters into something new, like a trendy restaurant or retail store, is prohibitive. This dilemma has resulted in property owners opting to negotiate lower rents with cinema operators rather than undertake costly renovations or demolitions.
Anything to survive: Movie theater operators are investing in enhancing the cinematic experience to draw audiences back. Larger screens, family-friendly amenities, and upscale lounges aim to make theaters more appealing than home entertainment options. Operators like Chris Johnson of Classic Cinemas are even adapting lease structures to align with fluctuating sales.
Looking back: The past years have not been kind to cinemas, with the pandemic closures followed by a drought in new releases due to Hollywood strikes. This turbulence has seen a decline in the number of screens across the country and put a strain on profitability. Yet, industry giants like AMC and Cineworld are adapting, focusing on opening more profitable venues and exploring rent reductions as strategies for survival.
➥ THE TAKEAWAY
A glimmer of hope: Despite these challenges, there's optimism for a 2025 revival, with the expectation of a resurgence in movie production. Recent hits have shown that there's still a strong appetite for cinematic experiences that can't be replicated at home. However, the battle to regain pre-pandemic attendance and revenue levels continues.
📈 CHART OF THE DAY
Office landlords were the biggest contributors to the overall delinquency rate of commercial property loans in bond deals in March. SOURCE: MORNINGSTAR CREDIT
Office loans accounted for over 75% of newly delinquent property loans in mortgage-bond deals this March, according to Morningstar.
While the sector's overall delinquency rate was steady at 4.4%—impacting more than $20B in loans—office and multifamily delinquencies climbed to offset a decline in retail delinquencies.
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