Spend tens of billions of dollars to buy the U.S. property market! Blackstone: Real estate valuations have bottomed out!

What did Blackstone fancy behind its gamble on real estate?

On April 8, local time, Blackstone announced on its official website that they had reached a definitive agreement, according to which Blackstone Group will buy Apartment Income REIT (i.e., AIR Communities), one of the largest apartment owner companies in the United States, at a price of about 10 billion US dollars (about 72 billion yuan).

This is the second time Blackstone has bought a real estate company this year. In January, Blackstone also acquired Tricon, a Canadian-based real estate company, for $3.5 billion.

Blackstone Group CEO Jon Gray said Blackstone believes "real estate valuations have bottomed out" in the United States.

Acquired at a premium of $10 billion, AIR Communities' share price soared

According to the agreement, the purchase price represents a 25% premium to AIR Communities' closing price on the New York Stock Exchange on April 5, 2024, the last trading day prior to the trade announcement. AIR Communities shares also soared more than 22% on Friday.

It is reported that AIR Communities is a publicly traded, self-managed real estate investment trust. The Company's portfolio includes 76 communities in 10 U.S. states and the District of Columbia, totaling approximately 27,000 apartment homes.

Commenting on the acquisition, Terry Considine, President and CEO of AIR Communities, said, "I am proud of the team and its culture of excellence. The transaction will strengthen the company's mission to provide a place to live, a great place to work, and to act as a responsible steward, as well as a trusted partner to investors. The team's established business will focus on resident services and investment opportunities through a partnership with Blackstone. We are grateful for the opportunity provided by Blackstone and for our confidence that working together can achieve results. ”

Blackstone made several moves, betting on real estate

Founded in 1991, Blackstone is one of the world's largest independent alternative asset managers, with its real estate business established in 1991 and is currently the world's largest commercial real estate owner, owning and operating assets in all major geographies and industries, including logistics, residential, office, hospitality and retail. In recent years, it has been looking to acquire poorly managed, strategically located assets around the world.

Commenting on the acquisition, Nadeem Meghji, Blackstone's Global Co-Principal, said, "AIR Communities represents the highest quality portfolio of large apartments we have acquired and is located in a multi-family market with strong fundamentals. We are impressed with the excellent operations team at AIR Communities and look forward to working closely with them while continuing to deliver a great resident experience." ”

In fact, this is not the first time Blackstone has acquired a real estate company this year. As early as January this year, Blackstone Group announced that it would spend US$3.5 billion (about 25.3 billion yuan) to acquire Canada-based Tricon. It is understood that this is a real estate company that invests in single-family rental and multi-family rental housing. There are operations in the U.S. and Canada, and Blackstone acquired all of Tricon's outstanding common shares at $11.25 per share. The trading price represents a 30% premium to Tricon's closing price on the New York Stock Exchange on January 18, 2024, the last trading day prior to the trade announcement. If this acquisition is included, Blackstone's real estate investment this year will exceed 13 billion US dollars (about 94 billion yuan).

It is understood that Tricon's business model is to provide quality rental homes and apartments in premium communities, and to provide resident services through its technology-enabled operation platform and dedicated on-site operations team, including Atlanta, Charlotte, Dallas, Tampa and Phoenix, as well as Toronto, Canada, etc. In addition to managing a portfolio of single-family rental housing, Tricon has a single-family rental development platform in the U.S. with approximately 2,500 homes under development, as well as numerous land development projects that support nearly 21,000 single-family future development homes. The company also owns a Canadian multi-family development platform with approximately 5,500 affordable multi-family rental apartments under construction.

Following Blackstone's acquisition, Tricon plans to complete a $1 billion new single-family rental development in the U.S. and a $2.5 billion new condo development in Canada (along with its existing joint venture partners). It will also continue to improve the quality of existing single-family homes in the U.S. through an additional $1 billion in planned capital projects over the next few years.

The rise in interest rates in the United States over the past year has put pressure on landlords who rent out their homes and other commercial real estate loans, and some analysts see the Blackstone deal as a vote of confidence that the pressure has begun to ease. "We think the message Blackstone is sending through this transaction is that they believe interest rates are stabilizing and access to capital is improving, which is a positive reading for the sector," analysts at Jefferies Financial Group said. ”

Behind Blackstone's big bet on real estate: it thinks valuations have bottomed out

Why buy real estate companies aggressively in 2024? Jon Gray explained that they believe valuations in the real estate sector have bottomed out. On April 8, local time, Jon Gray said in a video released on the official website of Blackstone Group: "2024 will be a year of further acceleration, although the problem of inflation has made the Federal Reserve raise interest rates many times in the past, but the latest data shows that the problem of inflation has been alleviated, but I don't think the Fed will cut interest rates too early and sharply." We believe that real estate valuations have bottomed out, but this does not mean that the sector will suddenly reverse, and we can see that some real estate companies in the market are still facing problems such as poor management and excessive debt. So we want to get into the industry when we hit the bottom, even though it may still be at the bottom for a while. ”

According to the latest survey data from Zillow, the largest real estate vertical information website in the United States, new existing homes listed on Zillow increased by 21% in February compared with the same period last year and by 20% from January. Home prices rose month-over-month in February in 45 of the 50 largest U.S. metropolitan areas. The biggest increases were in expensive coastal metropolises: San Jose (1.6%), San Diego (1.3%), Seattle (1.2%), San Francisco (0.8%) and Washington, D.C. (0.8%). House prices in 47 districts increased compared to the same period last year. The highest annual price increases were recorded in Hartford (12.5%), San Diego (10.8%), San Jose (8.8%), Boston (8.8%) and Providence (8.4%). There is growing evidence that the impact of the "interest rate lock-in" is starting to wane.

According to the sub-indicators surveyed by the website, the number of new listings increased by more than 3% month-on-month in February, which is the largest monthly increase since 2018, and the increase is significant. At the same time, the flow of new listings was 20.8% higher than the same period last year, providing buyers with more choice.

(New listings, source: Zillow website)

Blackstone's big gamble on U.S. real estate may just be just beginning, Jon Gray has repeatedly shown confidence in investing in the real estate sector in 2024, saying two weeks ago that real estate prices are bottoming out and now is the time to buy.

Editor-in-charge: Zhu Yumeng

Proofreading: Ran Yanqing

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