Blackstone deal for apartment REIT signals opportunities

The market for commercial real estate mergers and acquisitions showed signs of life Monday when Blackstone announced that it was acquiring a listed real estate investment trust, Apartment Income REIT Corp., for $10 billion in cash.

"The market needs to see institutions do these kinds of transactions," said Kevin Gannon, chairman and CEO of Robert A. Stanger & Co. Inc. "For the most part, they’ve been sitting on the sidelines."

"Will others follow suit?" Gannon asked. "This deal is a sign, probably a good sign, that the market will stabilize and potentially take off. Investors need to see this. The commercial real estate market hasn't been fluid for almost two years."

The market for commercial real estate investing has faced serious headwinds in an environment of sharply rising interest rates, amid headlines about half-empty office buildings, and investors pulling their money from nontraded REITs, and most notably from the industry’s biggest player, the $61 billion Blackstone Real Estate Income Trust, also known as BREIT.

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Blackstone is buying Apartment Income REIT (AIRC) through its global real estate fund, Blackstone Real Estate Partners, and not through BREIT. Blackstone is acquiring the outstanding common shares of AIRC for $39.12 per share, which is a premium of 25 percent to the REIT's closing price on Friday.

With more than $2 trillion in commercial real estate debt coming due before 2028, there's clearly an opportunity for buyers like Blackstone, other executives said. Much of that $2 trillion will have to be refinanced at higher rates, putting more pressure on real estate investors to sell.

"It looks like Blackstone is value-investing and hunting," said another senior industry executive, who asked to speak confidentially to InvestmentNews. "Firms that need to refinance are looking to alternatives to the banks."

Another executive concurred.

"This event is less about signaling a market bottom and more about highlighting an opportunity," said Brian King, CEO of Lodas Markets. "Public REITs have experienced a considerable downturn, with the particular REIT in question dropping over 40 percent from its peak.

"Blackstone is likely to leverage synergies that can enhance the assets' performance, and potentially sell some of them at a profit, as the firm has successfully done before," King said. "It's often the case that the individual components are worth more than the collective whole."

AIRC's real estate portfolio consists of 76 high-quality rental housing communities concentrated primarily in coastal markets, including Miami, Los Angeles, Boston and Washington, D.C., according to the companies.

Blackstone plans to invest more than $400 million to maintain and improve the existing communities in the portfolio and may invest additional capital to fund further growth, the companies said in a statement.