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Did Blackstone Just Call The Top In Commercial Real Estate?

Tyler Durden's picture




 

Blackstone's well-timed IPO in 2007 was almost the perfect top-tick indicator as 'the smart money' private-equity guys cashed out into the public markets at peak euphoria. Earlier this year we noted that, among others, Blackstone was drastically ratcheting down purchases (and in fact selling what it could) US residential real estate - and with it withdrew the only pillar holding up the housing market. And now, in the biggest deal in 7 years, Blackstone is dumping a $3.5 billion commercial real estate portfolio. Given the recent declines in CMBX pricing, perhaps, once again, Blackstone is calling the top in another bubble...

 

CMBX prices have been sliding for mezz tranches in recent months as last year's yield at any price market rolls over...

 

So is Blackstone calling the top with this deal? (via Bloomberg)

Blackstone  agreed to sell 26 Northern California buildings to Hudson Pacific Properties for $3.5 billion in its latest deal to exit office holdings acquired seven years ago near the market’s peak.

 

Hudson Pacific, based in Los Angeles, agreed to pay $1.75 billion in cash for the properties and the rest in stock, giving Blackstone about a 48 percent stake in the real estate investment trust, the companies said in a statement today.

 

The acquisition of the properties, in the San Francisco area and Silicon Valley, “perfectly aligns with our strategy to acquire high-quality office properties in West Coast markets poised for continued growth through off-market transactions,” Victor Coleman, Hudson Pacific’s chairman and chief executive officer, said in the statement.

 

Blackstone, the biggest U.S. office landlord, has been selling assets from its 2007 acquisition of Equity Office Properties Trust as occupancies increase and rents recover from the real estate crash. The Hudson Pacific transaction marks the private-equity firm’s biggest sale of office buildings since just after the $39 billion Equity Office takeover, when it flipped many of the properties to reduce debt.

This is not Blackstone's first sale...

Blackstone in November agreed to sell a 42-story office building on Manhattan’s Bryant Park to an Ivanhoe Cambridge venture for about $2.25 billion, according to two people with knowledge of the deal. The sale would be the largest of a whole U.S. office property since a group led by Boston Properties Inc. purchased the General Motors Building in New York for a record $2.8 billion in 2008, according to Real Capital Analytics Inc.

 

In September, Blackstone sold five office buildings in the Boston area to investors led by Oxford Properties Group, a unit of the Ontario Municipal Employees Retirement System, for about $2.1 billion.

*  *  *

Who's the greater fool?

 

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Mon, 12/08/2014 - 20:04 | 5530565 spekulatn
spekulatn's picture

Its different this time...right?

;/

Mon, 12/08/2014 - 20:36 | 5530637 NotApplicable
NotApplicable's picture

Ontario public "servants" just took one for the team. Anyone want to tell them?

Mon, 12/08/2014 - 20:40 | 5530651 Escrava Isaura
Escrava Isaura's picture

 

 

Real estate is one of the problems of an over-financialized economy… the endless search of rent.

 

 

Mon, 12/08/2014 - 21:28 | 5530800 BorisTheBlade
BorisTheBlade's picture

The endless search of a smaller yield and a bigger fool.

Mon, 12/08/2014 - 21:45 | 5530843 Escrava Isaura
Escrava Isaura's picture

 

 

You must have been a good (A+) history student.

 

Mon, 12/08/2014 - 20:05 | 5530570 logicalman
logicalman's picture

Commercial real estate - what a mess.

Near where I live there are two buildings, each 250,000 sq. ft. that will be empty in a couple of months.

Meanwhile, just down the road, they are building new.

WTF?

Alice in Wonderland had it easy.

Mon, 12/08/2014 - 20:18 | 5530592 venturen
venturen's picture

two...in NJ there are about 100 of those.

Mon, 12/08/2014 - 20:32 | 5530627 I am more equal...
I am more equal than others's picture

 

 

I'm certain some national appraisal firm was flown in, spent less than 8 hours on the ground, got their information from a national data source, got back on the plane, spent less than 10 hours filling in some pre-written format - not thinking or analyzing facts at all - pugged the proposed contract rents into a DCF, and then submitted the completed report at the end of the week.  Collected the check, cash it, and moved on to valuing those two building you speak of not noting the proposed construction down the street.  The banker is happy.  The appraiser is happy..  The borrower is happy.  The loan won't default for two to three years.  They will say market conditions changed.  Rinse, Repeat.  Start the mess all over again.

Mon, 12/08/2014 - 20:40 | 5530649 NotApplicable
NotApplicable's picture

 

Tulip bulb appraisers, FTMFW!!!!!

Mon, 12/08/2014 - 21:12 | 5530738 Larry Dallas
Larry Dallas's picture

I think this is a great question. I think that the operators who purchased Multifamily at these nosebleed cap rates are going to have a hard time taking out their equity investors (“LPs”) as prices will have to come down for a few reasons:

1. Wages have been flat at best depressed at worst
You can’t increase rents indefinitely when your tenants wages aren’t going up.

2. Rents in some markets are a higher % of tenant than others.
People in Tier 1 cities (Washington and Houston) will pay 30-50 of their net income each month as compared to other cities. With that said, you can only pay so much rent before you can’t eat or it affects lifestyle. So there is another hurdle for rents that many landlords forget to think about.

He who panics first, panics best. Blackstone's trade will put a lot of pressure on those who overpaid.

Mon, 12/08/2014 - 20:11 | 5530587 pragmatic hobo
pragmatic hobo's picture

well ... in LA they are resorting to burning down half built buildings ...

Mon, 12/08/2014 - 20:45 | 5530672 NotApplicable
NotApplicable's picture

"recycling"

Mon, 12/08/2014 - 20:14 | 5530589 p00k1e
p00k1e's picture

Looks like scapegoating.  We’ll know in the future… but will have forgotten this thread. 

Mon, 12/08/2014 - 20:27 | 5530615 Bay of Pigs
Bay of Pigs's picture

Wait until they start dumping their residential portfolio too.

Mon, 12/08/2014 - 20:37 | 5530636 boattrash
boattrash's picture

Well, on the residential front, I must live in a geographical oddity. During the middle of the 08 crisis, my county tax assessor said my modest home increased in value a whopping 33%.

I have a link to a short article below stating the ARA says properties are down 28%.

http://www.couriernews.com/view/full_story/26177161/article-Housing-valu...

Mon, 12/08/2014 - 21:22 | 5530789 Wilcox1
Wilcox1's picture

The property taxes they make you pay don't have all that much to do with the value of your property. They look at what they want to spend and divide it among the properties under their jurisdiction. Nothing you can do but pay. 

Mon, 12/08/2014 - 21:26 | 5530798 Wilcox1
Wilcox1's picture

Just ask the man with the extremely pregnant wife who went out in the middle of winter to pay his

Mon, 12/08/2014 - 21:45 | 5530841 boattrash
boattrash's picture

Bingo!  I must say though, that the mountain property I purchased is another story. In my 2nd year of ownership, my tax bill came, it had been raised 1337% (This is not a typo) 1337%. Upon some phone calls informing them they would be surrounded with pitchforks and torches if they were doing this to everybody, sending a written letter of protest, and studying state tax codes (after which I showed them where they had violated at least one) I got Aprox. 1100% of that crap removed.

Mon, 12/08/2014 - 20:39 | 5530645 eatthebanksters
eatthebanksters's picture

It's not a top...a $3.5B deal in Norcal means nothing on a national or global scale.  Equity Offices owned a lot of empty buildings in the Bay area back in 2010 and 2011...they also owned a lto of product that competeted with each other in the same geo locations.  The hot market has filled up most of the empty buildings and I'll bet they are keeping the institutional blue chip properties and spinning the rest.  Smart move...you never lose money making a profit.  If you want to find out if they picked the top of the CRE market find out how much of their total portfolio sold...if its a majority, then you may be on to something...if its less than 50% it might just be a consolidation/profit taking move or maybe they are exchanging into assets in different locations.

Mon, 12/08/2014 - 20:43 | 5530668 NotApplicable
NotApplicable's picture

Ummmmm... Blackstone is the reason that this matters.

Mon, 12/08/2014 - 20:51 | 5530690 Smiddywesson
Smiddywesson's picture

At these prices, you'd be crazy not to buy this tulip.  

Mon, 12/08/2014 - 21:15 | 5530750 22winmag
22winmag's picture

Yes... when major-league real estate carpetbaggers like Blackstone dump and run, the end is near.

Mon, 12/08/2014 - 21:16 | 5530760 starman
starman's picture

Bamm! Game on! Hedge accordingly.

Mon, 12/08/2014 - 21:21 | 5530780 Infinite QE
Infinite QE's picture

But didn't Blackstone buy Sam Zell's r/e portfolio at the peak back in 07-08?

Mon, 12/08/2014 - 21:25 | 5530793 AdvancingTime
AdvancingTime's picture

All the optimism boiling up through the economy has not reached much of rural America or where I live in the Midwest. The recent election results seem to agree with me that something is very wrong. It is easy to understand why Blackstone is selling currently owning buildings is an ugly business.

 I did not sleep well last night because I was afraid. I was haunted by fear and I found all the reassurances by Janet Yellen and the Federal Reserve are not helping. Like the young boy in the movie years ago the spirits of those who once filled the world with life will not let me rest, in this case I'm haunted by dead businesses and not people. The article below concerns the cost and problems of buildings sitting vacant because of business failures. I have my finger on the pulse of small business and it is far from healthy.

 http://brucewilds.blogspot.com/2014/10/i-see-dead-businesses.html

Tue, 12/09/2014 - 13:35 | 5533151 DebtTheNewEquity
DebtTheNewEquity's picture

They are holding 48% of the common equity, to exit a stake like that takes two years perhaps?  If they wanted to truly cash out they could have sold to some soveriegn wealth funds for some atrocious amount of money.  I think it is clear they have identified a few spreads in the market that they think will change (I don't know which) and are taking this measure to realize on them over a few years. 

 

I would rather call tops on their sale of the Waldorf to the Chinese at ludicrous pricing.  That has shades of selling Rockefeller Center to the Japanese in the 80's. 

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