Two years after selling the assets, Blackstone is buying back a portfolio of rental apartments in Japan from China’s troubled Anbang Insurance Group, but this time under a new strategy, according to a source close to the situation.
The private equity real estate manager is understood to be paying around ¥300 billion ($2.8 billion; €2.49 billion) for the 220-building portfolio with capital from its Asia open-ended core-plus fund, according to the source. Launched in 2018, the open-ended Blackstone Property Partners Asia has corralled $1.36 billion to date, according to PERE data.
The real estate manager first acquired the majority of the assets in the portfolio in 2014 from General Electric’s property unit for an estimated ¥200 billion with capital from its opportunistic funds. It is understood that Blackstone reduced operating expenses, upgraded rooms and put a more active leasing management program in place during its previous ownership of the portfolio. The group then sold the portfolio with some additional properties to Anbang for ¥260 billion in 2017. Last year, the insurance group reportedly started the sale process for the portfolio as it was under pressure from Beijing to offload its assets.
Under the core-plus strategy, Blackstone is planning to add value by increasing the rents of the apartment properties this time around.
During Anbang’s ownership of the portfolio, the insurer was more focused on maintaining a high occupancy rate than raising rents, even though apartment rental rates have continued to rise in Japan, the source explained to PERE. The majority of the properties in the portfolio are apartment buildings in Tokyo, Nagoya, Osaka and Fukuoka where the firm sees population growth, driven by young professionals who increasingly want to live and work in these areas.
Although Blackstone will hold the bulk of the portfolio in its open-ended vehicle over a long-term period, PERE can also reveal that the group plans to sell some of the underlying assets in the next year or two.
Blackstone declined to comment on the transaction.
Blackstone’s purchase of the apartment portfolio is reportedly the largest-ever real estate deal in Japan by price. The bidding process “was quite a competitive situation and many people, mostly core and core-plus buyers, were interested in buying the portfolio,” a Tokyo-based real estate investment manager told PERE.
Blackstone’s familiarity with the portfolio was a major reason that the firm could move faster than the rest of the bidders, the source told PERE. Also, the transaction entailed a share transfer of the holding company that holds the assets instead of a simple purchase of hard assets. Such a deal structure was too complicated for most core funds, the source said. Additionally, the huge size of the portfolio also gave the private equity giant a relative advantage as the firm has raised a significant pool of core-plus capital to deploy. The firm’s global core-plus AUM increased 31 percent to $46.2 billion last year, according to its latest earning call.