BlackRock: ‘What’s driving our business now is picking individual assets’

Anne Valentine Andrews, global head of infrastructure and real estate at BlackRock, says investors should prioritize specific properties within secular trends in the current volatile market environment.

Anne Valentine Andrews

Anne Valentine Andrews, the global head of infrastructure and real estate at asset management giant BlackRock, believes her firm is putting its money where its mouth is when it comes to property these days.

By the spring, the firm will have consolidated its New York-based workforce under one roof, occupying approximately one-third of the 2.9 million-square-foot 50 Hudson Yards, a standout building within the city’s Hudson Yards redevelopment. With a reported value of $3.8 billion, breaking down to about $1,400 per square foot, it is understood to be the costliest single office ever developed.

The move will see BlackRock’s New York-based staff work in the same building for the first time in decades. Valentine Andrews believes the quality of the property will prove a hit with her colleagues and the resulting collaborations there will make the expense worth it. She thinks its many amenities will prove the notion that prime institutional-grade offices will do more than just survive today’s secular headwinds. “It’s the best of the best,” Valentine Andrews says of the property. “This is what companies are looking for.”

Valentine Andrews shares a thesis: “We’re still going to have offices. But now they have to be beautiful – have a gym, cafeteria, auditorium, great hotels nearby, that sort of thing. They have to be green, too.”

The Related Companies and Oxford Properties-developed, Foster & Partners-designed skyscraper was made to attract blue-chip tenants. It has succeeded in doing so. A roster of high-profile companies is taking space and 50 Hudson Yards, which opened officially in October, is now almost 90 percent let. Financial and technology tenants, including Facebook owner Meta, Truist Financial, ServiceNow, Passkey and XTX Markets are among those joining BlackRock there.

BlackRock is not an investor in 50 Hudson Yards. The building is majority owned by Mitsui Fudosan, the Tokyo-based real estate business of Japanese conglomerate Mitsui Group. BlackRock did not provide finance for it, either. That was done by Bank of China, Deutsche Bank, HSBC, Sumitomo Mitsui and Wells Fargo. But BlackRock will be investing by paying one of the keenest rents in New York. The exact rent has not been disclosed, but according to New York brokerage Metro Manhattan, office rents at 50 Hudson Yards are “some of the priciest in Manhattan, ranging from $100 to $130 per square foot.”

As a cornerstone tenant, BlackRock will benefit from cost-reducing incentives. But its occupation of 15 floors of the property still demonstrates what Valentine Andrews wants to say: that prime assets will continue to attract large leases from top corporates. She says these are the properties that should be prioritized by institutional investors during this period of market volatility and transition.

This is one of her takeaways from the BlackRock Alternatives’ Private Markets Outlook white paper, which the firm published in December and she discussed with PERE shortly afterwards.

The paper extols the virtues of buying offices where landlords have invested in “convenience, amenities and sustainability to encourage a broader return to the office.”

The research also echoes other wisdoms – that logistics and living sectors should “remain key points of focus for investors,” for instance. Beyond highlighting relevant sectors, Valentine Andrews also highlights guidance to focus on specific assets amid a market environment where no 1,000-foot strategies can be regarded as bulletproof anymore.

View from the sideline: Douglas Weill, Hodes Weill

BlackRock’s preference for granular asset selection is consistent with other market perspectives

Douglas Weill, founder of capital advisory firm Hodes Weill, says that current market circumstances mean actively seeking value has become more important than before.

“It is harder to underwrite today, but there are deep discounts that may be available that warrant investment. But, as they point out, you have to look asset by asset.”

For Weill, bigger managers’ access to extensive dealflow will also be significant in the current market. “It is all about having the ability to be granular, but also to have a big funnel to have both a perspective of the market and also to sift through and identify opportunities.”

View from the sideline: Michael Turner, Oxford Properties

Valentine Andrews’ assertion that best-in-class offices will continue to drive investment from institutional investors is substantiated by Canadian investor Oxford Properties’ investment in Hudson Yards

The investor made more headlines in 2022 for its high-profile exits in the sector, including in New York. But president Michael Turner is keeping faith in strategies involving amenity-rich, well-located workplaces.

In a statement after 50 Hudson Yards was delivered, he said: “The early success of Fifty Hudson Yards backs our conviction that best-in-class offices which deliver exceptional experiences, employee wellness and high sustainability will continue to outperform. We continue to see this dynamic play out in markets across our global business.”

The paper includes a chart in which it specifies strategies both by location – at the city level – and by asset class. For example, the chart cites Los Angeles apartments, UK student housing and Nordic logistics as having lower relative volatility expectations and higher relative return expectations. Conversely, it positions Hong Kong and San Francisco offices as both highly volatile and low yielding.

By Valentine Andrews’ reckoning, the secular trends that proved popular going into today’s macroeconomic crisis, such as the move towards ‘just-in-case’ supply chains and more people working remotely, should endure and drive further shifts in tenant demand. Demographic trends will also bolster occupation volumes in more niche real estate segments, like childcare and senior living. But she adds that, even within these marketplaces, there is currently a greater need for more forensic analysis of each asset.

She explains: “What’s driving our business now is picking individual assets. There are broad themes which everyone knows about – industrial and residential being pre-eminent. But within the top sectors, it is important to make sure you’re picking the best properties, with a high ranking from a sustainability angle too. Stick with secular themes but spend more time on individual asset selection.”

Real tentativeness

Since BlackRock formed a real assets platform in 2016, essentially combining its real estate and infrastructure businesses, the firm has more than doubled assets under management from about $30 billion then to approximately $85 billion today.

Valentine Andrews has personally overseen the last part of that growth, after being promoted to lead the platform in April 2021. She envisages growth to continue – even given today’s tumultuous economy – though not led by real estate currently.

Her background – like much of the platform’s growth – is in infrastructure, a sector she describes as seeing “no big falloff on dealflow” thanks to a wide institutional engagement in energy-related assets. The firm deployed $4.8 billion into the asset class in 2022.

Rearranging the furniture

With the real estate market in relative stasis, Valentine Andrews has elected to focus her efforts internally

She has led the restructuring of BlackRock’s real estate business to emphasize activity in two different risk and return profiles: core and value-add – and from a global standpoint.

That was a departure from BlackRock’s previous regionally autonomous, organizational structure. Last month, the firm announced the centralizing of its core strategies, promoting Paul Tebbit to lead them. That followed its creation of a similarly centralized global value-add real estate platform led by Thomas Mueller-Borja, who was promoted into the role of global chief investment officer to lead it.

In a memo about the reorganization, shared with PERE, BlackRock said: “This structure will promote co-ordination among investment teams and reduce organizational layers – particularly at the regional level – to accelerate decision-making, optimize underwriting and increase the sharing of information and best practices.”

BlackRock’s real estate operations inherited value-add strategies via the acquisition of Singapore-based private equity real estate firm MGPA in 2011, a deal Valentine Andrews describes as “a seminal moment.”

Before then, the firm was predominantly engaged in investing via core, open-end vehicles.
She would have the two strategies share resources. “The thematics are the same,” Valentine Andrews says. “They happen differently and in different places, but, ultimately, the same thematics impact the whole world.”

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On the other hand, BlackRock deployed just $1.7 billion into real estate investments in 2022 and that was across equity, debt and secondaries deals. She remarks on the disparity in activity between these two constituent parts of the business she oversees. While in infrastructure “the pace has not abated at all,” Valentine Andrews describes the current real estate market as where “deals fall over,” where both buyers and sellers are renegotiating, and where “there is a real tentativeness now” among peers.

She forecasts 2023 will see similar activity by the conjoined platform, with investment volumes driven again by sustained appetite for infrastructure investments, given their bond-like characteristics.

“The broader outlook for alternatives is that fixed income is going to have a massive year, a renaissance of sorts. A year ago, nobody would have been talking about that,” Valentine Andrews says.

To compete against that overarching institutional preference, real estate investment firms will need to be nimble in their operations in order to stand out. “You can’t now just set and forget a strategy.”