Blueprint: Blackstone two-way data center play, Brookfield’s land grab, Colony Capital’s big exit

Blackstone goes big on data centers with a $10 billion take-private; Brookfield expands its lot banking capabilities; Colony Capital finds a buyer for its legacy assets, and more in today's briefing, exclusively for our valued subscribers.

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He said it

“If you think of the economy as a river of commerce that flows, what the pandemic did is really put a dam there and stopped business and leisure activity… What we are now seeing is really a torrent of economic activity that’s picking up.”

Jonathan Gray, Blackstone’s president and COO, speaking on the annual Bernstein Strategic Decisions Conference call last week.

What’s new?

Have it both ways
Are data centers a real estate play or are they best suited for infrastructure portfolios? This question has taken on greater significance for institutional investors during the past year as the property type has risen in prominence. Blackstone, it turns out, sees it fitting into both buckets. This week, the New York mega-manager launched a $10 billion privatization of QTS Realty Trust, a Kansas-based data center company [see the announcement here]. To execute this all-cash deal, Blackstone is tapping both its Infrastructure Partners platform and BREIT, its non-listed real estate investment trust.

If data centers do belong to both asset classes, this could be the first of many real estate-infrastructure tag teams to come. Then again, it could be yet another example of Blackstone doing what other managers that do not have the capital – or investor confidence – fail to pull off.

Land ho!
Plenty of institutional capital has clamored for the single-family sector since covid-19 ignited suburban housing markets across the US. But Brookfield is taking things a step further. The Toronto-based manager acquired Newland, a California-based developer of master-planned communities [the announcement here]. At the heart of the transaction is a vast supply of developable land and the ability to acquire more. Along with a portfolio of 35,000 lots, Newland brings a national platform for sourcing land. Some of these lots will be sold to homebuilders, Adrian Foley, Brookfield’s managing partner and president of development, told PERE. Others will be developed by the firm directly. The transaction includes lots for multifamily and other commercial development, but the access to a key part of the single-family home supply chain was a significant consideration for the deal, Foley said.

One firm’s trash
Given the sheer focus and determination behind Colony Capital’s plan to be a pure-play digital real estate business, it is of little surprise that it hit its 2021 target to divest from its non-digital assets, set four years ago. More surprising would have been if New York-based manager Fortress Investment Group did not feature somewhere among the buyers given how motivated Colony was as a seller. And so it transpired: Fortress has entered into a definitive agreement with Colony to acquire a portfolio of approximately 40 positions spanning more than 100 properties in Europe and the US – and their management – for $535 million. In a profile interview with PERE published a decade ago, we called Fortress “Wall Street’s garbage men” in a tribute to their favorable approach to assets finding themselves in circumstances at odds with original underwriting. Things have not changed.

Bouncing back
Goldman Sachs is looking to double its property investment in Japan to around $2.28 billion a year as part of a bigger plan to revamp its private equity real estate business. The firm will reportedly focus on sectors with growing demand, such as logistics hubs and data centers. It will also look at opportunistic options in the form of properties offloaded by distressed companies. In 2019, the bank returned to the real estate fund market after a decade, targeting $3 billion for a new core-plus/value-add vehicle. The ambition to grow its real estate business stems from the consolidation of its four alternative investment units into a single, $140 billion private investing business.

In focus: Vegas for saleVegas map

The great casino chase
The four-mile-long Las Vegas Boulevard has been captivating institutional real estate giants in recent years. Apollo Global Management and VICI Properties tied up to acquire The Venetian this March. Blackstone made two bets in quick succession by first acquiring the real estate assets of The Bellagio in late 2019; and then a 50 percent stake in the assets of MGM Grand and Mandalay Bay in early 2020.

PERE set out to explore private real estate’s great big casino chase in June’s cover story. Two distinct opco-propco investment approaches have emerged out of the changing ownership of Las Vegas’s real estate. One uses higher-returning capital to acquire the operating company, like Apollo did with The Venetian. The second involves a less risky, sale-leaseback transaction, whereby the manager only acquires the underlying real estate. Blackstone’s investments involved the latter approach.

And contrary to popular belief, the pandemic has not dented institutional investment appetite for Vegas casinos so far. The cap rate on Vegas assets remains higher than 5 percent, despite a reduction in visitor volumes. With the US gearing up for a full return to normal by July 4, analysts are also optimistic that so-called ‘revenge travel’ will bring crowds, and occupancies, back to pre-covid levels in leisure markets like Las Vegas.

Conversation starter

A reckoning for office?
Are office landlords on a crash course with calamity? The Economist thinks so. The magazine ran a column last week [read it here (subscription required)] bucking the industry narrative about pent-up demand on the part of office occupiers. Citing projections from the IMF, Fitch and Moody’s, The Economist predicts falling usage rates, rising vacancies and declines in valuations that will reverberate back to investors. “Office landlords… and those who bankroll them, continue to pretend that no storm is coming. With billions of dollars sunk in undesirable buildings, they face a reckoning.”

What do you think? Is the office sector drinking its own Kool-Aid? Or are these fears overblown? Let us know how you feel and why by sending a note to kyle.c@peimedia.com.

Investor watch

Insurers go pan-European
A pair of European insurance companies are teaming up for a bet on city-center offices. Swiss Life Asset Managers and MAPFRE, a Spanish insurer, have forged a joint venture to invest in core office properties throughout Europe. At the onset of the partnership, the groups have €400 million of assets in Milan and Madrid. They plan to expand to Germany, Belgium, the Netherlands, Luxembourg, the UK and elsewhere in Spain and Italy.

This week’s investor meetings
Tuesday, June 8

Wednesday, June 9

Thursday, June 10

Friday, June 11

Today’s letter was prepared by Kyle Campbell with Jonathan Brasse, Evelyn Lee, Arshiya Khullar and Christie Ou contributing