Blackstone seals world’s biggest ever private equity deal

The US buyout firm is taking over Sam Zell’s US real estate investment trust Equity Office Properties Trust amid warnings that the collapse of the large buyout in all sectors of private equity is “inevitable”.

The Blackstone Group is to take over Sam Zell’s Equity Office Properties Trust, the US’s largest publicly traded owner of offices, in a deal worth $36 billion including debt.

The mega-transaction is not only the largest private equity property deal in history but also eclipses the purchase earlier this year of hospital operator HCA Inc for $33 billion to become the biggest private equity deal of all time in any sector.

Blackstone is buying Equity Offices, which owns or manages 580 buildings, through Blackstone Real Estate Partners, having agreed to buy all of the company’s shares for $48.50 each in cash. The acquisition is being made for Blackstone Real Estate Partners V, which is the world’s largest real estate opportunity fund. It closed in June with capital commitments of $5.25 billion.

The price represents a 20.5 percent premium to the company’s three-month average closing price and an 8.5 percent premium to Friday’s closing price.

Its deal comes amid huge demand for commercial property around the world combined with the easy availability of bank finance via traditional lending and commercial-mortgage backed securities.

In a statement confirming the takeover, Equity Offices said its Board of Trustees has unanimously approved the deal and recommended that shareholders also accept it.

If completed, the acquisition will not only continue a wave of public-to-private deals of real estate companies in the US, but also signal a milestone in the history of the company Zell has built up since founding it in 1976.

Zell is the “elder statesman” of private equity real estate and one of the most successful investors in the modern-day era. As chairman of Equity Office Properties, Equity Residential and Equity Lifestyle, he is also considered to be the “grandfather” of the modern day Reit industry.

President and CEO Richard Kincaid said: “”We’ve built a great company, epitomized by the caliber of our employees, the quality of our assets and the markets where we operate. Our ultimate goal has always been to maximize shareholder value, and we believe we have done that through this transaction with The Blackstone Group. The value created by this transaction reflects the hard work and dedication of our employees who have driven our success over the past 10 years.”

Jonathan Gray, senior managing director of the Blackstone Group, said: “We are extremely excited about this landmark transaction with Equity Office, which represents the largest private equity deal in history. We believe that the skills and strengths of Equity Office will greatly enhance our existing office platform, which has been expanded through our recent acquisitions of CarrAmerica and Trizec.”

Blackstone, one of the largest private equity firms in the world, has raised a total of more than $67 billion for alternative asset investing, of which almost $13 billion has been for real estate investing.

Last month it closed a joint venture with Brookfield Properties to buy Trizec Properties, one of North America’s largest commercial landlords, in deal valued at $7.2 billion.

The latest takeover comes amid unprecedented levels of fundraising and takeover activity by buyout firms, sparking warnings that a collapse of the large buyout is now “inevitable”.

Hector Sants, managing director for wholesale business at UK financial watchdog the FSA claimed recently the default of a large private equity-backed company is increasingly “inevitable” with implications for lenders, purchases of the debt and orderly markets. His comments came as the FSA published a detailed study of the industry identifying “excessive leverage” as a major concern.