Blueprint: Digging into Blackstone life science recap, BlackRock’s new North American fund, Ares’ single-family take-private

Blackstone goes long on life science office; BlackRock readies US value-add fund; GLP enters South-East Asia; Ares, Pretium spearhead first single-family rental take-private; and more in today's briefing, exclusively for our valued subscribers.

He said it

“The stock market is back near the high reached in February and selling at an above average valuation. The only things that appear to be low-priced are the ones that appear fundamentally most risky, such as oil & gas, retailers and retail real estate, office buildings and hotels, and low-rated tranches of structured credit.”

Howard Marks, Oaktree Capital Management’s co-chairman, in his latest memo.

What’s new?

Kathleen McCarthy
McCarthy: life sciences have gone through a ‘revolution’ in recent years

Loving life (science)
Blackstone is so fond of offices that cater to biomedical research – and the returns they generate – it has opted to recapitalize its biggest investment in space for a long hold. The New York-based firm intends to buy BioMed Realty Trust, a life science office company, from one of its opportunistic funds, Blackstone Real Estate Partners VIII, for $14.6 billion. Kathleen McCarthy, Blackstone’s global co-head of real estate, said it plans to roll the platform into a new and sector-specific, open-end fund targeting core-plus returns.

Here is what you need to know about the mammoth transaction:

  • Exit strategy: Blackstone weighed an IPO and private-to-private sales before opting for the recap.
  • Investor driven: BREP VIII investors and co-investors were keen on the investment, PERE understands. They were given the option of walking away with their share of the profits or entering the new fund. Some even kicked in additional capital.
  • Speaking of profits: Blackstone says the deal will generate $6.5 billion for the fund’s investors and co-investors.
  • Fiduciary duty: Morgan Stanley was hired to shop BioMed around to make sure the recapitalization price is the best available. Technically, a better offer could still be made.
  • Pandemic bump: While covid-19 has kept many offices quiet, BioMed’s properties have been lively with tenants working on tests, treatments and vaccines for the virus.
  • Maturing industry: A decade ago, research labs were an ugly duckling for investors, seen as costly to outfit and risky given the uncertain finances of laboratory startups. Now, backed by venture capital and private equity, life science research and development is arguably the most crucial field to a global recovery.
  • Concentration: Growth of this industry has centered on three key markets: Boston, the San Francisco Bay Area and San Diego. Through BioMed, Blackstone has large portfolios in all three metros, along with exposure to emerging secondary markets such as Seattle, New York and Cambridge, UK.

Bain Capital Real Estate capitalized on the strong demand for life science property – from tenants and investors alike – by selling a three-building campus in South San Francisco to Ventas, a Chicago-based REIT, last week for $1 billion. Brookfield is also reportedly considering the sale of a $3 billion life science portfolio [Bloomberg’s coverage here]. Check back later this week for an in-depth dive into this burgeoning sector.

Coming to America
Two years ago, Jim Barry, BlackRock’s real assets head, spoke of the firm’s ambitions to build a much bigger property business and double the platform’s $24 billion in assets under management in three to five years. He also said one “strategic gap” in BlackRock’s real estate business was in US value-add commingled funds, since it previously only raised and invested capital for the strategy through separate accounts. BlackRock, the world’s largest asset manager with $7.8 trillion in AUM, is now taking a big step forward in that expansion plan with the launch of its first North America-focused value-add real estate fund. Our coverage here.

Good morning, Vietnam
Logistics powerhouse GLP has kickstarted its expansion into South-East Asia with a 50-50 joint venture with Vietnam-based SEA Logistic Partners targeting up to $1.5 billion of assets. The new partnership has already secured three development projects in Vietnam’s two largest metros, Hanoi and Ho Chi Min City. The move is part of GLP’s rapid expansion plan as it has been venturing into new markets and businesses – including private equity and adjacent sectors – over the past two years.

Data snapshot

Risk tolerance
The risk-return profiles of choice have changed through the first three quarters of the pandemic.

Trending topic

SFR evolution
This week, Ares Management teamed up with New York-based Pretium Partners and other investors to execute the $2.4 billion take-private of Front Yard Residential Corporation, one of the top listed single-family rental operators in the US. The firms say it is the first public-to-private transaction in the booming SFR space [see our previous coverage here]. It highlights the rapid evolution of a sector scarcely on institutional radars a decade ago. Newcomers have formed joint ventures with established operators or built portfolios from scratch using credit facilities that large banks are increasingly willing to offer, as Rockpoint Group managing member Tom Gilbane told us last week. Given the voracious appetite for standalone homes, the Front Yard take private might not be the last first we see in this segment this year.

Hitting bottom
Seven months in, the pandemic’s impact on fundraising is finally starting to show up in the data. According to PERE’s Q3 2020 fundraising report published last week, the first three quarters of the year were the lowest year-on-year fundraising period in the past five years. An estimated $98.5 billion was raised during this period, versus $129 billion in Q3 2019. Barring a few record-breaking fundraises, mega funds and large regional funds were missing in action. A strategy shift is also playing out, with only 31 opportunistic funds closed during this period, compared with 54 last year. See our full coverage here.

Investor watch

Biotech shift
Alisa Mall, director of investments at the Carnegie Corporation of New York, left her job at the institution last week to take a position at San Francisco-based life science and health investing specialist Foresite Capital, where she will have a variety of business duties, PERE hears. Mall headed real estate and natural resource investment for the philanthropic foundation. Her exit comes on the heels of several other notably departures from Carnegie’s investment team, including chief investment officer Kim Lew and managing directors Ken Lee and Brooke Jones.

This week’s investor meetings

Tuesday, October 20

Wednesday, October 21

Thursday, October 22

Friday, October 23

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

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