Blackstone bets on e-commerce with US$18.7b logistics deal

Sydney

BLACKSTONE Group is doubling down on the future of online shopping, agreeing to buy US$18.7 billion of US logistics assets from Singapore's GLP in what it says is the world's biggest private-equity real estate deal.

Blackstone will gain 179 million square feet (sq ft) of urban logistics assets, greatly expanding the size of its US industrial footprint, the New York-based company said in a statement.

As online shopping grows in popularity, the need for warehouse space by retailers seeking to expand their digital operations and cut delivery times has ballooned.

That has lured investors into logistics real estate at a time when other types of commercial-property transactions have slowed amid concern over rising interest rates and a pullback by foreign investors.

The sale comes amid record fundraising for private-equity real estate funds and a flurry of warehouse deals.

Blackstone acquired Canyon Industrial Portfolio's last-mile properties for US$1.8 billion in March last year, adding to a string of similar purchases it has made in the logistics arena.

The world's biggest alternative asset manager also agreed to purchase Canada's Pure Industrial Real Estate Trust in a C$2.5 billion (S$2.54 billion) deal in January last year, plus more than 100 warehouse assets from Harvard University's endowment for US$950 million in September.

Much of that portfolio is also made up of so-called last-mile warehouses, which have grown in value as e-commerce companies expand and seek faster deliveries.

The last mile - or getting products bought via the internet to a person's house - is becoming a key differentiator in driving revenue growth, according to Bloomberg Intelligence (BI).

This means "starting with a focus on delivery and working backward, keeping the customer experience at the center," BI analyst Jennifer Bartashus said.

"Making the shopper journey easy, with transparency into order and delivery status is critical to success," she said. "Companies that build engaging experiences for their customers will be rewarded with loyalty and increased spending."

And online shopping in the US, even against the backdrop of a trade war with China, is climbing.

Retail e-commerce sales for the first quarter totalled US$137.7 billion, an increase of 3.6 per cent from the last three months of 2018, US Department of Commerce data released in May showed.

Total retail sales, meanwhile, were estimated at US$1.34 trillion, virtually unchanged.

"Logistics is our highest conviction global investment theme today, and we look forward to building on our existing portfolio to meet the growing e-commerce demand," said Ken Caplan, the global co-head of Blackstone Real Estate.

The GLP portfolio includes about 1,300 properties, and counts Amazon as its biggest tenant, the Wall Street Journal reported earlier.

Blackstone, founded in 1985 by Stephen Schwarzman and Peter Peterson, has grown to become one of the dominant buyout firms alongside the likes of KKR & Co and Carlyle Group.

In April, the firm reported its assets under management reached US$512 billion, the first time it has passed the US$500 billion mark.

Blackstone was the buyer in four of the six biggest property-related acquisitions by private equity firms in the past decade, including the US$7.2 billion purchase of Gramercy Property Trust last year and the US$5.6 billion deal for Strategic Hotels and Resorts in 2015, data compiled by Bloomberg showed. The firm is currently seeking US$5 billion for its latest real estate fund, a person familiar with the matter said last month. It has also set a US$25 billion cap on its latest flagship buyout fund, which would exceed Apollo Global Management's US$24.7 billion fund for the industry record.

Blackstone triumphed in an auction for GLP's assets that drew bids from Prologis and Brookfield Asset Management, according to a person with knowledge of the matter.

Blackstone Real Estate's global opportunistic BREP strategy will acquire 115 million sq ft for US$13.4 billion, while its income-oriented unlisted Blackstone Real Estate Income Trust will acquire 64 million sq ft for US$5.3 billion. BLOOMBERG