Blackstone Acquires Significant European Real Estate Portfolio

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In 2023, Blackstone, the world’s largest commercial property owner, increased its investments in European real estate more than any other region. This strategic move comes amid market turmoil and distressed selling, allowing Blackstone to capitalize on favorable opportunities. The real estate sector experienced a decline in deal-making due to significant increases in interest rates, causing strain on a market heavily dependent on low-cost debt. Third-quarter data from MSCI indicates a 50% decrease in deal volumes.

Despite an overall reduction in total spending on new property investments by Blackstone, dropping from approximately $47 billion in 2022 to around $9 billion in the first three quarters of 2023, a noteworthy shift occurred in its allocation. Unusually, over 55% of Blackstone’s global investments were directed towards European assets, including the UK. Traditionally, the majority of Blackstone’s investments are in the US, with only 20-30% allocated to European real estate. This deviation suggests that Blackstone identifies early buying opportunities in Europe as the real estate sector navigates the challenges posed by higher interest rates.

Kathleen McCarthy, Global Co-Head of Real Estate at Blackstone, noted that the firm has $40 billion of “dry powder” (funds raised but not yet invested). Blackstone aims to target investments in segments of the real estate market with strong cash flow growth and favorable supply-demand fundamentals. This includes areas such as logistics warehouses, data centers, and the “living” sector, comprising apartments and student accommodation.

The surge in debt costs in recent years has affected European real estate owners, leading to challenges in refinancing. Approximately €176 billion of the €640 billion in European private real estate debt issued between 2019 and 2022 may be difficult to refinance between 2024 and 2027 due to lower property values, tighter lending conditions, and increased debt costs.

Fergus Hicks, Real Estate Strategist at UBS Asset Management, highlighted that prices in Europe and the UK are correcting faster, with the UK market expected to bottom out first, followed by the rest of Europe. The delayed response in US valuations indicates that they are expected to bottom out last.

The real estate crunch has prompted Blackstone to acquire properties from funds facing liquidity pressure, resulting in more than 100 deals in Europe this year. Notable deals include taking Industrials Reit private and acquiring logistics properties from Swedish landlord Corem for €490 million. Additionally, Blackstone, in collaboration with two Blackstone-backed residential landlords, announced an £819 million deal with UK housebuilder Vistry to acquire 2,915 private and affordable rental and shared ownership properties.

Despite challenges, Blackstone’s strategic moves in the European real estate market underscore its ability to navigate and capitalize on evolving market conditions.