Breakingviews - Blackstone deal is a bright spot in gloomy sector

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The U.S. commercial real estate industry is mired in gloom, but some pockets are still sunny. Blackstone highlighted one of them on Monday when the investment firm led by Steve Schwarzman agreed to sell a group of warehouses to Prologis for $3 billion. The portfolio includes 14 million square feet of industrial properties in cities like Atlanta, Phoenix and Dallas, and the deal is premised in part on rising rents. That’s a sharp contrast to other landlords saddled with office buildings or shopping malls.

Warehouses, especially those in populated centers, are sought-after for a few reasons: More people are shopping online, space is scarce, and construction costs keep rising. According to the two companies, the net operating income generated by the warehouses is 4% of the acquisition price. But that ratio, known in the industry as the cap rate, rises to 5.75% when applying current market rents. In other words, income will rise as leases come up for renewal.

It’s a state of affairs playing out across the industry. Direct asking rents of industrial buildings have grown steadily to about $9 per square foot, from about $6 per square foot in 2019, according to commercial real estate services firm Avison Young. Meanwhile, listed real estate investment trusts which own industrial warehouses trade at a narrowing discount to net asset value, according to S&P Global Market Intelligence. In a gloomy sector, so-called big boxes are a bright spot.

 

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Prologis to buy industrial properties from Blackstone for $3.1 billionPrologis Inc said on Monday it has agreed to buy 14 million square feet of industrial properties from real estate funds affiliated with Blackstone for $3.1 billion in an all-cash deal.
Source: Reuters - 🏆 2. / 97 Read more »