Blueprint: Blackstone’s Bellagio stake offload, PERE introduces Trend Watch, Newmark demonstrates lender pool shrinking

Blackstone's partial exit from Las Vegas's Bellagio exemplifies the firm's keenness for a focus on the profitable exits from its BREIT; Newmark shows how lending sources are drying up; PERE introduces Trend Watch for print and online publications, and more in today's briefing, exclusively for our valued subscribers.

What’s new?

Nadeem Meghji/ Bellagio casino, Las Vegas

Blackstone bets on exits
Since a flaring up of redemption requests from investors in private real estate mega-manager Blackstone’s private BREIT fund at the end of last year, the firm has been keen to demonstrate profits it has booked from exits from the vehicle. Added to $12 billion of exits sold at a 4 percent premium to carrying values since January 2022 comes the sale of a 22 percent position in the assets of Las Vegas’s famous Bellagio casino. The deal, announced late last week, was struck with net lease specialist REIT Realty Income Corporation and valued the Bellagio assets at $5.1 billion, significantly higher than the $4.25 billion Blackstone paid for them in 2019.

Blackstone’s head of real estate Americas, Nadeem Meghji, described the partial sale as “another terrific outcome for BREIT shareholders,” while reiterating the firm’s continued commitment to Las Vegas where it has real estate valued at approximately $20 billion as of the start of the year.

The exit follows others from Blackstone’s biggest investment vehicle, including the $2.2 billion sale of Simply Self Storage to listed firm Public Storage in July. Meanwhile, as of June, the vehicle, which currently has a net asset value of $68 billion, received redemption requests from investors to the tune of $3.8 billion, still higher than the 2 percent of total assets monthly limit, but 29 percent below the firm’s redemption peak in January.

Digging in its heels
The Federal Reserve chair Jerome Powell underscored last week at the central bank’s annual Jackson Hole Economic Symposium that the US has no plans to cut interest rates until inflation is reduced to its 2 percent target, citing the continued strength of the US economy. This strength means the Federal Reserve will likely maintain a hawkish stance on monetary policy for the near-term, according to advisory Newmark’s 2Q 2023 Capital Markets report, published last week. “The Federal Reserve has been clear that it does not anticipate any rapid reduction in rates, a message that financial markets have resisted taking to heart,” the report stated.

Watch this space
The Securities and Exchange Commission last week adopted new rules for private fund advisers investing under the Investment Advisers Act of 1940. The widely anticipated rules put into place requirements that include requiring private fund advisers to publish quarterly reports and annual audits of each of their funds to increase transparency for investors. The ultimate impact on commercial real estate is not yet clear, per a release from the NCREIF PREA Reporting Standards Committee. NCREIF, the Chicago-based trade association for real estate invest fiduciaries, will be working to figure out the full impact and will release guidance and best practices in the coming weeks.

“The Reporting Standards Board and Council, along with real estate industry stakeholders, will begin analyzing the final rule in the coming weeks to determine the impact on the Reporting Standards and next steps in providing guidance and best practices to the institutional real estate investment community,” said John Caruso, council chair, NCREIF PREA Reporting Standards.

Trending topics

Trend Watch
Launching today, we are introducing Trend Watch, a new feature in PERE’s global magazine. Guest contributors from a select group of industry-leading data, analytics and advisory firms will share exclusive commentaries that shed light on some of the most important trends affecting the private real estate industry, from investment flows to ESG reporting – and a whole lot in between.

First up is a detailed look at how rising bankruptcy levels are impacting tenant default risk. At a time of dislocation in capital markets, landlords should be focused on identifying tenants at a higher risk of defaulting on their rent payments, argues Simon Mallinson, chief operating officer at Income Analytics, a London-based company aggregating tenant-level risk measures on a global basis. With the number of businesses going into bankruptcy or insolvency proceedings increasing significantly in Europe over the past year, Mallinson uses proprietary tenant scores to assess the countries and property types where the probability of default is highest. Check out his analysis and look out for the next instalment of Trend Watch in PERE’s October issue.

Doubling down on Hudson Yards
New York’s Hudson Yards district has plenty of detractors, including one real estate head who moaned to us recently about the long walk to the neighborhood from their offices in midtown Manhattan. But the area also has its fair share of supporters. One is Stephen Tross, Bouwinvest Real Estate Investors’ chief investment officer of international investments, who told PERE during a meeting at his Amsterdam office last week that the Dutch pension investor has divested some of its midtown Manhattan office assets to redeploy the capital into Hudson Yards, where Bouwinvest previously invested in Tishman Speyer’s The Spiral.

The dispositions are part of the investor’s rebalancing of its portfolio to be more heavily weighted to sustainable, future-proof assets. “[You want] to invest more in the best assets in an area like Hudson Yards, with the most up-to-date floor plates, specs and ESG criteria,” he explained. For more on Bouwinvest’s divestment activities, which reached a five-year peak in 2022, read our full story here.

Data snapshot

Lenders retreat
The number of active lenders in US commercial real estate has declined by 32 percent since its peak one year ago, with 1,168 such firms active in Q2 2023, per data from advisory firm Newmark’s United States Capital Markets Report Q2 2023. Total volume of loans originated represents a decline of 61 percent from a peak at the end of 2021, but has ticked up slightly from $89.3bn in first quarter 2023 to $99.1bn in second quarter.

Investor watch

Park Lane Hotel, NYC

Park Lane hotel stays sovereign
The Park Lane Hotel in Manhattan is switching Middle Eastern hands, according to reports. Business intelligence provider Pincus Co reported the Qatar Investment Authority is paying Abu Dhabi’s Mubadala Investment Corporation $622.9 million for the 610-room hotel at 38 Central Park South. The deal involves $400 million of debt arranged with New York private equity firm Apollo Global Management through its Athene Annuity And Life Company. The sale price is below the $654 million paid by New York developer Steve Witkoff and Malaysian businessman Jho Low in 2013 and well below the $1 billion Witkoff hoped to recoup from a sale in 2017 which never materialized, according to The Real Deal. The QIA, ranked fifth in PERE’s Global Investor 100 ranking with $53.8 billion of equity invested in private real estate, will be hoping for a continued resurgence in travel following covid-19 will bring with it another rise in valuations for the famous New York hotel.

Over target, but still investing
The Employees Retirement System of Texas had 10.7 percent of its $35.8 billion in assets invested in real estate as of July, exceeding its strategic allocation target of 9 percent. However, the investor is still targeting five to eight new real estate commitments totaling $300 million under its private real estate capital plan for fiscal-year 2024, which will begin on September 1. Texas ERS has a “strong desire to add industrial exposure” and intends to back niche strategies such as life science, data centers and self-storage, deputy chief investment officer Anthony Curtiss and chief investment officer David Veal stated in the pacing plan, which was presented at the pension plan’s board meeting last week. “Vintage year outlook appears favorable with real estate prices off approximately 15 percent versus March 2022 highs,” the officers wrote. The $300 million earmarked for real estate represents a quarter of the $1.2 billion that Texas ERS has allocated to private markets investments in FY 2024.

This week’s investor meetings

Thursday, August 31
City of Baton Rouge Employees’ Retirement System
New Mexico Public Employees Retirement Association
South Dakota Retirement System
MWRA Employees’ Retirement System
Municipal Fire & Police Retirement System of Iowa
Seattle City Employees Retirement System 
Sonoma County Employees’ Retirement Association

Today’s letter was prepared by Jonathan Brasse with Evelyn LeeCharlotte D’Souza and Samantha Rowan contributing