Blackstone JV to buy $1.4bn US retail portfolio

The New York-based private equity and real estate giant has teamed up with US retail property company DDR Corporation for the purchase of a shopping centre portfolio spread across 20 states. The investment marks an early deal for its latest global opportunity fund, BREP VII.

New York-based private equity and real estate giant The Blackstone Group is set to add a majority stake in a portfolio of 46 US shopping centres being sold by developer Plaza Centers to its already massive property empire in a deal valued at $1.43 billion.

Blackstone, which is investing on behalf of its latest global opportunity fund, Blackstone Real Estate Partners VII, has teamed up to buy the portfolio with US retail property company DDR Corporation, which was already providing asset management services for its properties.

According to an announcement by Plaza on behalf of EDT Retail Trust – an investment trust jointly owned by EPN Group, one of its subsidiaries, and Eastgate Property, an investment entity of an unnamed US fund manager – the deal should complete in June.

In their announcement on the transaction, the acquiring partners said affiliates of the Blackstone fund, which is currently in fundraising mode, would assume 95 percent of the portfolio’s common equity of a special purpose entity called BRE DDR Retail Holdings with affiliates of DDR assuming the remaining 5 percent. DDR would also invest $150 million in preferred equity into the venture, would provide it with leasing and management services, and would have acquiring rights over 10 of the assets given certain circumstances.

The partners said their joint venture, BRE DDR Retail Holdings, would also assume the properties’ existing debt of $640 million and at least $305 million of further financings, as part of the transaction.

The portfolio’s 46 shopping centres are spread across 20 states and comprise 10.6 million square feet in total. The properties are currently 90 percent leased.

Nadeem Meghji, principal at Blackstone, said of its JV partner: “In addition to DDR's history and performance with these shopping centers over many years, the company's impressive operating platform makes them an outstanding partner for this portfolio.”

Blackstone’s Blackstone Real Estate Partners VII fund is understood to have attracted $6 billion of equity commitments already ahead of a final closing expected this year. The firm aims to attract more than $10 billion in total although it has set a hard cap of $13 billion for the vehicle.

The sale leaves EPN Group with just two properties left on its books, valued at approximately $43 million. EPN, which is 22.7 percent owned by Plaza, became the major shareholder in the EDT Retail Trust in June 2010 after recapitalising the trust in a deal valued at about $116 million. It purchased its remaining units last August in an ‘off-market’ deal, Plaza said.

Ran Shtarkman, president and chief executive officer at London and Warsaw-listed Plaza Centers, praised the deal as a first successful foray into the US market. The company is best known for its exploits in Central and Eastern Europe: “Plaza in conjunction with our joint venture partners acquired a portfolio of high yielding properties at a time when market values were clearly depressed.  By utilizing our specialist retail property expertise, we were able to enhance capital and income value through the redevelopment and repositioning of the portfolio.”

The deal was indeed welcomed by the stock market as its shares rose by more than 20 percent in early morning trading.