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Blackstone’s Crown Jewel Faces a Test

Three attorneys general file lawsuit seeking to block Albertsons’ $4 bln payout. A major player in credit markets is betting $1.8B to grow forests rather than cut them down. Meanwhile, rising interest rates are challenging one of the nation’s biggest REITs, but its executives are doubling down on its holdings.

Blackstone's Crown Jewel Faces a Test

Three attorneys general file lawsuit seeking to block Albertsons' $4 bln payout. A major player in credit markets is betting $1.8B to grow forests rather than cut them down. Meanwhile, rising interest rates are challenging one of the nation’s biggest REITs, but its executives are doubling down on its holdings.

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In today’s email: Three attorneys general file lawsuit seeking to block Albertsons' $4 bln payout. A major player in credit markets is betting $1.8B to grow forests rather than cut them down. Meanwhile, rising interest rates are challenging one of the nation’s biggest REITs, but its executives are doubling down on its holdings.

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🎧 Podcast of the Day: After the city of Santa Monica failed to submit a state-approved housing plan on time, developers raced to capitalize on the city's failures. But how did this happen? TRD's Deconstruct chats with reporter Trevor Bach about why the city of Santa Monica is set to get more than 5,000 new units, and whether cities can challenge these projects.

CAPITAL MARKETS

Blackstone’s $70B Real Estate Fund For Retail Investors Gets Tested

Blackstone’s (BX) $70B Real Estate Income Trust (BREIT) is slowing down, facing pressure from rising interest rates, which make cheap debt much harder to acquire.

A strong portfolio: Over the past five years, Blackstone’s real estate fund has built up a wide-ranging property portfolio, which includes notable locations such as the lavish Bellagio hotel and casino in Vegas and a 76-story, Frank Gehry skyscraper in NYC. The BREIT strategy outperformed stocks, with total net returns for popular share classes at 9.3% as of September.

Betting on BREIT: According to Nadeem Meghji, head of Blackstone Real Estate Americas, “BREIT was built to weather challenging markets.” BREIT’s $21B in interest rate swaps appreciated by $4.4B this year, bolstering the portfolio’s value. Blackstone’s president Jon Gray also invested $100M of his own money into BREIT since July, with employees having upwards of $1.1B invested in the REIT.

THE TAKEAWAY

Obstacles ahead: BREIT’s successful strategy of increasing swap trades to defend against soaring interest rates, along with cash flow from its portfolio, is hedging 87% of BREIT’s debt for the following six and half years, according to Meghji. But there are still many challenges ahead as BREIT’s returns narrowed compared to last year, when the share class delivered 21.5% returns.

CLIMATE & MONEY

Wall Street Wagers $1.8B on Forest Carbon Offsets

Oak Hill Advisors LP, a subsidiary of T. Rowe Price Group Inc. (TROW), led a group of investors in purchasing 1.7M acres of eastern hardwood forests to reduce logging and increase carbon offset deals.

Health equals wealth: The 1.7M acres purchased by Oak Hill and other investors for $1.8B from Forestland Group span 17 Eastern U.S. states. The forests will be overseen by environmental-market firm Anew Climate LLC, one of the 10 largest U.S. timberland owners. Anew is uniquely positioned because it primarily focuses on carbon markets, as opposed to lumber and pulp mills.

Renovating our forests: Recently, the forest-carbon offsets market has boomed as a way for companies to make up for their greenhouse gas emissions. Companies use offsets to scrub carbon from environmental balance sheets. In other words, forest carbon offsets pay timberland owners not to log to keep trees growing.

THE TAKEAWAY

Patience is a virtue: Oak Hill is in no rush to sell offset credits and are “content to let carbon amass” in Anew’s forests. Anew also plans to reduce the number of harvests and promote growth in their woods instead. The projections are clear—the timberland company expects 10–20% of future revenues to come from harvesting wood, compared to 80–90% under the previous owner.

COURT CHALLENGES

Three attorneys General File Lawsuit Seeking to Block Albertsons' $4 Billion Payout

The grocery chain Albertsons (ACI) is facing lawsuits from attorneys general across the U.S. who are blocking a $4B payout to shareholders ahead of its merger with Kroger (KR) amid antitrust concerns.

The super-merger: In October, Kroger, the largest supermarket chain in the U.S., announced its plans to acquire Albertsons for $25B. While the deal is not projected to close until 2024, the merger would produce a commercial real estate juggernaut with a combined portfolio of 4,996 stores, 3,972 pharmacies, and 2,015 fuel centers.

The lawsuits: Albertsons was slated to pay a “special dividend” of $4B to its shareholders this past Monday, but had to pause the payments after a federal lawsuit was filed against them under Section 1 of the Sherman Antitrust Act by attorneys general in CA, IL, WA, and DC. The federal law forbids companies from entering agreements that would lessen competition or restrain trade.

THE TAKEAWAY

The cost of competition: The lawsuits claim that Albertsons’ dividend payout (and planned merger with Kroger) would restrict the grocer’s ability to compete. The $4B payout would be 57 times greater than any dividend the company has paid out in the past to shareholders. And diminished competition could drive up consumer grocery prices, which have already risen nearly 12% this past year due to inflation, according to Forbes.

📰 Editors' Picks

  • Sixth time’s the charm: The Federal Reserve raised interest rates Wednesday for the sixth time this year as the central bank fights our fastest-growing inflation in 40 years.

  • Layoff season: With U.S. loan volumes down 90% from last year, employees at Wells Fargo (WFC) are bracing themselves for more cutbacks.

  • Buy-buy Biscayne: Miami-Dade County scrapped a $1.3B plan to build a monorail through Biscayne Bay, opting instead to extend the Metromover connecting Miami to Miami Beach.

  • Pause on the Potomac: JBG Smith Properties (JBGS) has decided to place its two multifamily development projects on Potomac Yard on hold amidst inflated construction costs.

  • Preparing for bad weather: Jones Lang LaSalle Inc. (JLL), the second biggest commercial real estate brokerage in the country, cut its annual earnings forecast as severance costs surge.

  • New Facility: Hyundai Motor plans to construct a $205M plant in Montgomery, Alabama, to make batteries for EVs produced at the company’s factories in Alabama and Georgia.

🤝 Deals & Dealmakers

  • Making Philly history: Post Brothers sold a 1,015-unit luxury apartment complex to KKR and Mack Real Estate Group (MREG) for $357M, the most expensive multifamily sale in Philadelphia’s history.

  • Meta’s out of Austin: Facebook’s parent company (META) backed out of plans to occupy a 589K SF space in Austin, and will sublease its downtown space at Sixth and Guadalupe.

  • Discount game bar: According to the Center City Revenue Finance Corp. (CCRFC), a former Family Dollar (FDO) at 47 S. Main St. in Memphis will become a mixed-use development featuring a game bar.

  • Miami’s first supertall: PMG finally broke ground on Miami’s first supertall skyscraper, which will be the tallest residential building south of NYC upon its completion in 2027.

  • News from the north: Edwards Vacuum (EVAC) is planning to build a $319M, 240K SF industrial manufacturing plant in upstate New York.

  • Stepping outside for some fresh air: Canadian investment firm VM Hotel Acquisition Corporation (VMH) backed out of acquiring five hotels and pivoted to an air-purification startup instead.

  • Keyway gets new keys: Proptech company Keyway, known for facilitating commercial real estate transactions, entered the Texas multifamily market with a $21M apartment deal.

📈 CHART OF THE DAY
💼 JOB BOARD

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

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