After Cornering Rentals, Blackstone Is Now Going After Student Dorms

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by Tyler Durden
Friday, Aug 20, 2021 - 02:00 PM

For much of the past decade, private equity giant Blackstone, which at last check had $684 billion in AUM, was the single largest institutional landlord in the US, and according to some, the "largest owner of real estate in the world." Then a few years ago, Blackstone lost that designation when it comes to residential housing (it remains the largest commercial landlord by a wide margin); however the recent explosion in home prices and rents has prompted the Wall Street firm to double down its efforts to recover the title of undisputed landlord champion, and in June the firm announced its latest transaction (funded by ultra cheap debt courtesy of the Fed) when it purchased Home Partners of America, which owns more than 17,000 houses throughout the US, for $6 billion.

Yes, despite a growing bipartisan political backlash against institutional landlords translating in popular blowback at a time when rents are soaring at the fastest pace on record...

... Blackstone continues to exhivit all the PR grace of a bull in a China shop, as it extends its marketshare grab in US real estate, with the firm now pivoting to dorms, as it slowly but surely hopes to become the marginal price setter in all US real estate.

According to Bloomberg, Blackstone is "broadening" its bet on U.S. student housing, forming a $784 million joint venture with Landmark Properties, with the intention of recapitalizing a portfolio of buildings with 5,416 beds.

Landmark, based in Athens, Georgia, operates more than 75 student-housing properties with nearly 51,000 beds. The firm has $7.7 billion in assets under management.

Landmark property The Station State College

Blackstone’s deal with Landmark follows a $1.2 billion acquisition of a 10,500-bed portfolio of U.S. student housing with Greystar Real Estate Partners in 2018 and a $6 billion deal in 2020 to buy a 28,000-bed portfolio in the U.K. from Goldman Sachs Group Inc.

Blackstone's rationale to go after dorms is clear: it is betting on college housing as students flock back to campus after more than a year of Covid-19 restrictions. They’re seeing a relative bargain in the typically private, off-campus complexes compared with the cost of apartments and other residential assets, which have soared in value since the pandemic.

It's not just Blackstone - other institutional investors are also pouring in: Canadian financial conglomerate Brookfield Asset Management is forming a joint venture with Scion Group LLC to acquire at least $1 billion in student-housing properties, the company’s first U.S. bet on the sector; Private equity firm TPG started investing in student housing in November in a partnership with Cardinal Group Investments.

The private equity giant is making the investment through Blackstone Real Estate Income Trust, a non-traded REIT, the people said. Since inception in 2017, BREIT has averaged annual total returns of 11.64%.

What happens next? As America's housing sector is increasingly owned by a handful of financial conglomerates, expect even more monopolization Amazonification, and as the smaller players are gobbled up the handful of marginal price setters will hike up rents to whatever price clearing level they desire.

Meanwhile, courtesy of the Fed's destructive policies, Blackstone will have no difficult finding access to as much debt as it needs to expand its market share becoming the biggest single landlord in world history. Finally, since most politicians are receiving financial incentives one way or another to ignore what is happening, this strategy will not change until society finally hits a tipping point.