If Blackstone had managed to float its pan-European industrial platform Logicor last year, it would have been one of the largest-ever global real estate initial public offerings. The New York-based private equity giant was understood to have been seeking a public valuation of approximately $11 billion for its 147 million square foot logistics portfolio. While a Logicor flotation would have raised considerably less capital than that, it would have been enough to surpass the largest-ever European real estate IPO – the 2014 take-public of Spanish firm Merlin Properties for €1.76 billion.
As things turned out, the private sale route became the favored option, with Blackstone reportedly receiving bids from Temasek, with Mapletree Investments, and Global Logistic Properties, and of course, sovereign wealth fund China Investment Corporation, the winning bidder that clinched the deal at a staggering €12.25 billion.
But one would have to wonder whether Blackstone had ever seriously considered an IPO for Logicor, and was instead using the IPO process merely as a rouse to drum up interest ahead of a full sale. After all, the Logicor sale process was eerily reminiscent of Blackstone’s attempted IPO of its US-based logistics business, IndCor Properties, in September 2014. The firm initially planned to pursue a public listing for IndCor and filed for an IPO with the Securities and Exchange Commission. It planned to raise $1 billion through the transaction, which would have valued the company at around $8 billion.
Instead, Blackstone announced two months later that IndCor had been sold to GIC Private, Singapore’s sovereign wealth fund, and GLP for $8.1 billion, in one of the biggest property deals since the crisis.
While a listing is a good way to generate capital, most firms prefer a full sale because of the higher valuation that can be achieved, depending on market conditions. One fund manager, which recently opted out of an IPO for its €1 billion portfolio recently, said that due to liquidity issues in European real estate, public companies can trade at a discount to net asset value, whereas the private market valuation of a good asset is based on an increasing valuation.
However, it has also been suggested that Blackstone had always intended to run a ‘dual-track process’ and legitimately pursued both an IPO and a sale. This meant an ongoing auction for the sales process while simultaneously pulling together the disclosure and everything else needed for an IPO.
One downside of running this dual process is the forfeiture of fees paid to facilitate a public offering – though in the context of the eventual sale price, these fees are a drop in the ocean. Last October, IVG, the Bonn, Germany-based real estate company scrapped the IPO of its German office portfolio at the 11th hour, citing “bleak market conditions.” The portfolio was eventually bought by Blackstone at the firm’s desired valuation of €3.3 billion – a figure it felt could not be achieved in the public market.
The number of IPOs in real estate has been falling more or less steadily since 2007, when 145 companies were listed, according to Dealogic. This year, the number of listings has reached just 30 to date. One of those was Blackstone’s IPO of Invitation Homes in January for $1.54 billion, which was the third largest ever.
The reason for this decrease can be attributed to two extra factors. Firstly, the rampant geopolitical uncertainty of recent years has fed through to the public markets, making an initial public offering a less attractive option for exiting an investment.
The second factor is the sheer weight of firepower from large property investors. The rise of Asian and Middle Eastern institutional investors and, in particular, sovereign wealth funds means there is a wall of capital chasing a limited supply of assets, further encouraging firms like Blackstone to go with the private option.
As long as this wall of capital continues to exist, it will largely shut out the possibility of there being a real estate IPO boom anytime soon, turning most public offerings into nothing more than stalking horses.