Blackstone’s drive to own apartments coincides with the firm’s move into core real estate: well-leased buildings that generate steady returns, lower than the gains distressed assets might yield. Core properties account for most buildings worldwide, and Chief Executive Officer Steve Schwarzman has said they may eventually make up $100 billion in assets at the firm.
The Stuyvesant Town purchase is being made through Blackstone’s first fund for core-plus properties, ones that require light renovations or new leasing to boost returns. While the fees from managing core real estate are lower than for so- called opportunity funds, the universe of core assets is far larger.
Blackstone formed its first core-plus fund this year, an open-end vehicle that allows it to hold investments in near perpetuity. The purchase will increase the firm’s core-plus assets by more than 60 percent, from about $8.5 billion as of the end of the third quarter.
To make the Stuyvesant Town deal work, Blackstone extracted tax breaks from the city in exchange for keeping 5,000 units rent-protected for 20 years and extending regulations on an additional 1,400 units for five years to 2025. The company doesn’t have to hit the roughly 20 percent return hurdle that it would have sought had it bought the complex before the financial crisis. And it will be able to hold the asset for longer than the typical seven to 10 years in a finite, high-return real estate fund.
“The seller gets a full and fair price, the city maintains affordability, tenants are happy with who takes over and we can make a good investment on behalf of our own investors,” Gray said at the press conference. “That was the premise of the deal.”
Record Deals
Stuyvesant Town is the latest coup for a firm that has broken records in private equity since the last decade’s real estate boom. In 2007, Gray orchestrated the record $39 billion buyout of Sam Zell’s Equity Office Properties Trust, then the biggest U.S. office landlord. Later that year, he bought Hilton Worldwide Inc. for $26 billion and took it public in a record offering for a hotel company in 2013, having restructured the debt when the financial crisis threatened to sink the investment.
Since the credit crisis, Blackstone started a real estate debt division and raised a series of ever-larger funds globally and for Europe and the Asia-Pacific region. It also began investing in Latin American real estate.
The firm has been an active seller as well as buyer of real estate. During the 12 months ended Sept. 30, Blackstone returned about $25 billion from property sales to investors. That was out of $45 billion in total realizations for the period.