In a modest-growth environment, BlackRock said it has found a competitive edge for itself in real estate around the world: rehabilitating properties that others won’t touch.
“One play that we really like with our on-the-ground teams is to buy ugly, rundown buildings that really haven’t had a lot of cap-ex put back into them for whatever reason, and we refurbish and reposition them as core, income-producing properties again” said Simon Treacy, global chief investment officer and head of US equity for BlackRock’s real estate business, at a press roundtable late last week. Under such a strategy, which it has adopted in and around cities such as Tokyo, Paris, London and New York, the firm has been able to materially boost rent, stabilize and sell the buildings, he noted.
“There is today in gateway cities a very large stock of these properties that get overlooked by a lot of people because they’re not shiny or they’re not producing a core yield coming out,” said Treacy. Tokyo, for example, has thousands of buildings that have not received any capital improvements since the country’s economic downturn in the 1990s. “There are buildings that the big developers just won’t touch unless they can get the building at such a cheap price to redevelop.”
In such a market, many foreign firms are parachuting in and out of the country or allocating investment capital to local players, said Treacy. “If you have local, seasoned professionals on the ground that can spot the mispricing, you get into a situation where you get a lot of deal flow and you’re able to buy below costs.”
Another strategy that BlackRock has been pursuing is niche developments where the basis is very attractive. One such London development was purchasing a partly completed property from a distressed Portuguese development and then completing the project with its in-house project management and development team. “You can get a great entry basis because how many competitors can look at that risk, price it and then execute it?”
Another opportunity is to build new residential assets in various US cities. Currently, BlackRock is developing more than 20 apartment communities across the country, focusing on coastal cities with extensive mass transit systems and large Generation Y populations.
Meanwhile, logistics is “a market that’s really getting very interesting, we believe, given the whole change in supply cycle, e-commerce, etcetera,” said Treacy. “That’s one area that we think has a very good medium-term outlook and, for stabilized logistics assets, there’s a lot of capital looking to get invested in that existing stock.”