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Blackstone REIT’s Acquisitions Illustrate Potential Economies of Scale

June 12, 2018

Blackstone REIT’s Acquisitions Illustrate Potential Economies of Scale

June 12, 2018 | James Sprow | Blue Vault

When nontraded REIT programs do not raise large amounts of equity in their public offerings, they may find it difficult to make the kinds of acquisitions that result in attractive prices and greater potential for appreciation. In other words, they may find it more challenging to “buy low and sell high” to give their shareholders a chance at net asset value appreciation over time.

Because Blackstone Real Estate Income Trust (“BREIT”) has been so successful so far in raising huge amounts of equity capital, the REIT has also deployed large “chunks” of that capital in portfolio acquisitions across a spectrum of real estate types.

For example, on March 9, 2018, the REIT purchased a portfolio of industrial properties in at least six different states for a total portfolio price of over $1.8 billion. The properties together comprised over 21.7 million square feet. That single portfolio acquisition alone would be larger than most nontraded REIT portfolios.

On January 31, 2018, the REIT acquired a portfolio of eight multifamily properties comprising 1,283 apartment units in Texas, Tennessee and Kentucky. That followed an acquisition of a portfolio of 12 multifamily properties in Texas, Tennessee and Kentucky on November 15, 2017, comprising 3,301 apartment units.

From June 27, 2017, through September 30, 2017, the REIT acquired 15 multifamily properties in Texas, Nevada, Arizona, California and Washington, in five separate portfolio purchases.

Blue Vault estimates that BREIT acquired 157 properties for a total of $2.13 billion in Q1 2018. That follows nine acquisitions in Q4 2017 for an estimated $1.24 billion, and 30 acquisitions in Q3 2017 for over $850 million. The REIT reported real estate assets as of March 31, 2018, of $5.39 billion, and was utilizing leverage with a debt ratio of over 64%. Another aspect of BREIT’s size is the REIT’s ability to obtain financing at very competitive rates, with a weighted average cost of debt at March 31, 2018 of just 3.92%, with over 65% of that debt at fixed rates.

Because the REIT is raising such large amounts of equity capital, averaging over $225 million per month year-to-date in 2018 as of May 31, it is able to make acquisitions that smaller REITs and even traded REITs can only envy. Because many traded REITs are trading at values below their NAVs, they are unable to issue more shares without diluting existing shareholders’ interests and are not able to compete with a juggernaut like BREIT when it comes to the acquisition of large CRE portfolios. 

With a new offering registered to raise up to another $10 billion in equity, BREIT is on its way to becoming the largest nontraded REIT program ever, and it single-handedly has staunched the decline in nontraded REIT capital raise.  If it truly is able to “buy low and sell high” someday its shareholders will be the beneficiaries of real economies of scale. 

 

Learn more about Blackstone Group LP on the Blue Vault Sponsor Focus page

 

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Loreen M. Gilbert, CIMA, AIF, CRC, CLTC – President, WealthWise Financial Services
Blue Vault
July 6, 2016

Our firm has been using Blue Vault from the first year it was available.

We have found it to be a valuable tool to verify what wholesalers tell us and to dig deep into how the reported investments are really performing.

We appreciate that Blue Vault has expanded its services from initially covering REIT's to now also including BDC's.

Our clients also appreciate that we conduct this additional due diligence on their behalf.