Houston-based Hines is selling more than $1 billion of West Coast office buildings to The Blackstone Group as it liquidates one of its three non-listed real estate investment trusts (REIT), the developer-cum-fund manager said Thursday.
Hines launched Hines Real Estate Investment Trust in 2003 and now plans to wind down the REIT by the year’s end. As part of this process, the firm is selling seven office properties to Blackstone for nearly $1.2 billion and is in the process of liquidating the rest of the REIT’s portfolio, which includes Chase Tower in Dallas, 321 North Clark in Chicago and a grocery-anchored retail portfolio located primarily in the southeastern United States.
Blackstone is buying 3 million square feet of office properties in California and Washington. The purchase includes Los Angeles’ Howard Hughes Center (pictured), a complex comprising five class A office buildings and an athletic center that Hines bought from Blackstone and Brookfield Asset Management in 2014 for $508 million, according to real estate data provider Real Capital Analytics. A spokesperson for Blackstone declined to comment on the sale.
“Impacts from the great recession caused us to close the fund to new investors in 2009, so we began considering other options that could provide the best opportunities for enhancing stockholder value through the following economic recovery,” said Sherri Schugart, the REIT’s chief executive, in Thursday’s statement. “By making strategic asset sales and redeploying proceeds into Class A West Coast office properties over the last several years, we've been able to add to the overall quality and concentration of our portfolio, sustain attractive distributions to investors, and increase our net asset value per share. After our management and board of directors considered a variety of strategic alternatives to maximize stockholder value through a liquidity event, we are confident that the plan of liquidation achieves that goal.”
Capital for Blackstone’s purchase comes out of its latest global opportunistic fund, Blackstone Real Estate Partners (BREP) VIII, according to Hines’ statement. Blackstone closed the vehicle at $15.8 billion in October. In May, the firm purchased two San Francisco office towers for $489 million from Manulife Financial with capital from the fund, PERE previously reported.
Other purchases from BREP VIII include the purchase of a 49-property US retail portfolio last December from RioCan Real Estate Investment Trust for C$2.7 billion ($1.9 billion; €1.9 billion) and the $2 billion acquisition of a 10,399-unit apartment portfolio in November from Greystar Real Estate Partners.
Nearly all of the capital in BREP VIII – which is the largest closed-end property vehicle ever raised – comes from US and foreign investors that had previously participated in Blackstone's real estate funds. These limited partners included the Teachers' Retirement System of the State of Illinois, the Pennsylvania Public School Employees' Retirement System, the Teacher Retirement System of Texas, New York State Common Retirement Fund, each of which allocated $300 million to the vehicle, according to PERE Research & Analytics.