Blackstone to build US multifamily platform

The New York-based private equity and real estate firm's planned $2.7 billion apartment acquisition from GE Capital will provide the critical mass needed to build its latest property business.

The Blackstone Group has agreed to buy majority interests in 80 apartment complexes from GE Capital, the financing division of General Electric, for $2.7 billion. Of that amount, the firm is expected to pay nearly $1 billion in equity for the multifamily properties, which comprise about 30,000 units in Texas and the Southeast, according to an article in The Wall Street Journal.

The transaction represents the New York-based private equity and real estate giant’s largest US real estate investment in the past two years. Blackstone and GE Capital both declined to comment, but a person familiar with the deal said that some 15 operating partners will continue to own minority stakes in the properties, which were acquired at a more than 25 percent discount to replacement costs. The majority of the transaction, which was made on behalf of the firm’s $13.3 billion Blackstone Real Estate Partners VII fund, is expected to close during the fourth quarter. 

Blackstone has been buying apartment properties since it launched its real estate business in the 1990s, but it hasn’t owned substantial holdings in US multifamily assets in the past 10 years. However, PERE understands that the GE acquisition, along with a couple thousand existing units, now will give the firm the portfolio size needed to create an apartment platform. The platform would be similar to the businesses it has established for other property types, such as IndCor Properties for its industrial investments and Invitation Homes for its buy-for-rent single-family strategy, with designated teams to oversee and operate those platforms. 

The asset manager has generated more attention as of late for its disposition activity, including filing an IPO for Brixmor Property Group, the former US retail business of Australian property company Centro Properties Group, which the asset manager acquired in early 2011. The firm also reportedly is expected to sell or take public the hotel companies Hilton Worldwide and La Quinta Inns & Suites.

Blackstone is making a substantial investment in the multifamily sector at a time when the national apartment vacancy rate remains at one of its lowest levels. At the beginning of 2013, the rate was 4.5 percent, 85 basis points below the 20-year average. “Low vacancy (or high occupancy) is the key characteristic to encourage rent growth,” UBS Global Asset Management noted in a March report. “This leads to growing income and ultimately investment performance.”

Despite the nascent recovery in the US housing market, “our expectation is that homeownership will remain below the long-term average level for some time, allowing the rental market to hold onto the majority of the gains it has made in the last three years,” UBS said. The firm projected “excess rent growth” in the near term and approximately 3 percent rent growth in the intermediate term.