The mall is now a warehouse, and Blackstone Group LP is betting $18.7 billion on the shift.
That’s how much the alternative investment manager is paying for 179 million square feet of urban logistics properties — the warehouses used by Amazon.com Inc. and other retailers to fulfill orders from online shoppers. The deal with Singapore’s GLP Pte, the second-largest owner of U.S. logistics real estate, will almost double Blackstone’s U.S. industrial footprint.
The rise of Amazon and other e-commerce companies has increased the need for warehouse space by retailers seeking to expand their digital operations and cut delivery times. The shift toward online shopping is reconfiguring supply chains and shaping the fortunes of industrial landlords, with demand especially high in and around large cities, where e-commerce has taken off fastest
“This type of transaction may further validate what the public markets seem to have been saying for quite sometime: Well-placed industrial real estate assets continue to be sought after by institutional capital,” said J.T. Deignan, head of real estate equity capital markets at Mizuho Securities USA LLC.
The sale comes amid a flurry of warehouse deals. Blackstone, the world’s biggest alternative asset manager, has made both purchases and sales in the sector, including the $7.6 billion takeover of Gramercy Property Trust in October. Also last year, Blackstone acquired Canyon Industrial Portfolio’s last-mile properties for $1.8 billion, Canada’s Pure Industrial Real Estate Trust for about C$3.6 billion ($2.6 billion) and more than 100 warehouse assets from Harvard University’s endowment for $950 million.
The GLP transaction “fits perfectly with the strength of the Blackstone Real Estate franchise: large-scale, high-conviction, thematic investing,” said Nadeem Meghji, senior managing director and head of real estate in the Americas for Blackstone Real Estate. “We continue to be the largest investor globally in the logistics sector.”
Blackstone isn’t alone in making big wagers on the continued growth of e-commerce. Berkshire Hathaway Inc. has been buying Amazon shares, with Warren Buffett’s company disclosing last month that its bet on the internet giant totaled $860.6 million at the end of March.
The last mile — or getting products bought via the internet to a person’s house — is becoming key for driving revenue growth, according to Bloomberg Intelligence. This means “starting with a focus on delivery and working backward, keeping the customer experience at the center,” BI analyst Jennifer Bartashus said.
“Making the shopper journey easy, with transparency into order and delivery status is critical to success,” she said. “Companies that build engaging experiences for their customers will be rewarded with loyalty and increased spending.”
Online shopping in the U.S. is climbing. Retail e-commerce sales for the first quarter totaled $137.7 billion, an increase of 3.6% from the last three months of 2018, U.S. Department of Commerce data released in May showed. Total retail sales, meanwhile, were estimated at $1.34 trillion, virtually unchanged.
“Logistics is our highest conviction global investment theme today, and we look forward to building on our existing portfolio to meet the growing e-commerce demand,” Ken Caplan, the global co-head of Blackstone Real Estate, said in a statement late Sunday.
The GLP portfolio includes about 1,300 properties, and counts Amazon and Whirlpool Corp. as its biggest tenants. Other tenants include FedEx Corp., Home Depot Inc., L’Oreal SA, United Parcel Service Inc., Starbucks Corp. and Tesla Inc., according to the company’s website.
Blackstone Real Estate’s global opportunistic BREP strategy will acquire 115 million square feet for $13.4 billion, while its income-oriented unlisted Blackstone Real Estate Income Trust will purchase 64 million square feet for $5.3 billion, according to Sunday’s statement.
The properties being acquired by BREP are in high-growth markets such as the San Francisco Bay and Los Angeles areas, Seattle, Miami, New Jersey and Portland, Oregon, according to a person with knowledge of the deal. Those being purchased by BREIT are in the Dallas-Fort Worth area, Chicago, central Pennsylvania, Atlanta and south and central Florida, said the person, who asked not to be identified because the information isn’t public.
Blackstone, founded in 1985 by Stephen A. Schwarzman and Peter G. Peterson, has grown to become one of the dominant buyout firms alongside the likes of KKR & Co. and Carlyle Group. In April, the firm reported its assets under management crossed half a trillion, to $512 billion, for the first time.
The firm is currently seeking $5 billion for its latest real estate debt fund, a person familiar with the matter said last month. It has also been raising a $25 billion buyout fund, which would exceed Apollo Global Management LLC’s $24.7 billion fund for the industry record.
Blackstone triumphed in an auction for GLP’s assets that drew bids from Prologis Inc. and Brookfield Asset Management Inc., according to a person with knowledge of the matter. Melissa Sachs, a spokeswoman for Prologis, declined to comment. A representative for Brookfield didn’t immediately respond to a request for comment.
— With assistance by Cathy Chan, and Scott Deveau
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