- Blackstone made a killing on a less glitzy corner of the commercial property market.
- According to Bloomberg, the PE giant made big bets on urban warehouses across Europe starting in 2017.
Blackstone may have doubled its money by investing in a corner of the commercial real estate market that gets less attention than massive high rises or glitzy retail.
Bloomberg's Jack Sidders writes that the private equity giant bet big on warehouses across Europe, particularly smaller, grittier urban facilities off the beaten path but which are crucial points in the delivery process known as the "last mile." Starting in 2017, Blackstone started snapping up these properties in a wave of dealmaking that saw the firm sometimes transacting in much smaller amounts than it was known for.
At one point, Bloomberg writes, Blackstone bought a warehouse from a family-owned business in Dublin, Ireland, for 1 million euros, the tiniest real estate deal ever approved by the firm's investment committee.
It made 220 deals for warehouses in its real estate funds, most of which were fairly small by Wall Street standards. According to Bloomberg, the return on these investments was wild. In the five years since it embarked on the strategy, which Blackstone's head of real estate Jon Gray called the firm's "highest conviction strategy," demand for warehouses soared.
This was only accelerated by the pandemic, which saw more and more people working remotely, doing shopping online, and boosting the value of these industrial properties while other commercial real estate sectors like offices languished.
All told, Bloomberg reports that publicly available info points to a gain of about 5 billion euros after paying off the debt used to acquire the properties, doubling the money of investors who cashed out of the firm's fifth and sixth European fund offerings in 2022.
Part of Blackstone's secret sauce was granular, property level detail that tends to be hard to come by in commercial real estate, which is much more opaque than more liquid markets. The firm partnered with a UK-based data company called M7 Real Estate. With a trove of data that shed a light on all kinds of costs associated with owning warehouse properties, M7 helped Blackstone achieve scale necessary to juice returns for its investors.
The partnership made the investment strategy more efficient and, ultimately, more lucrative. The strategy, Bloomberg writes, is still in play, with Blackstone selling many of these properties to other funds it controls, and many firms have chosen to reinvest.