Inside Blackstone’s £18B Last-Mile Megadeal
Blackstone has completed the largest real estate deal ever not involving a listed company by recapitalising its European urban logistics platform Mileway at a value of €21B (£18B, $24B).
It is the latest instance of Blackstone building up and then taking a profit on a huge logistics or industrial portfolio, either in Europe or the U.S., as it continues to make hay in the booming sector.
Blackstone Managing Director Peter Krause is a keynote speaker at Bisnow’s Industrial and Logistics Transformation event in London on 3 March. But if you can’t wait until then, here’s everything you need to know about the giant transaction.
What Is Mileway?
Mileway is the platform Blackstone built up in the European last-mile or urban logistics sector. It started buying in the sector in 2017 and quickly hoovered up assets: Today the portfolio comprises about 1,700 assets totalling 158M SF across 10 countries and almost 100 cities.
It started off working with specialist M7 to buy assets in the sector, then created Mileway as a distinct business in 2019. Mileway is led by former Goodman executive Emmanuel Van der Stichele.
The biggest deal undertaken in creating the portfolio was the purchase of listed pan-European industrial company Hansteen for €1.9B in 2017 and 2019. But Blackstone has undertaken dozens of individual portfolio deals to create the company.
Recapitalisation — What Does That Mean?
Blackstone hasn’t sold Mileway in the conventional sense. Mileway’s assets were originally bought by Blackstone’s opportunity funds. Now, the investors in those funds have the option of selling their stake in this portfolio for cash, or rolling their investment into a new vehicle managed by Blackstone that will own Mileway. It is the same process that was undertaken when Blackstone recapitalised life sciences firm BioMed Realty in 2020.
The new vehicle will be a core-plus strategy, meaning it targets lower returns and takes fewer risks than an opportunity fund. For existing investors that want to sell out, other Blackstone core-plus funds like BREIT or Blackstone Property Partners Europe, will buy their stakes, along with other new investors.
Mileway will now be a "permanent life" vehicle, meaning that unlike the opportunity funds that previously owned it, it does not have a fixed date at which it ends and the assets have to be sold. That’s good for Blackstone, and means it retains the management of a big chunk of assets on which it continues to receive a fee. Its opportunity fund investors can choose to either sell at a profit, or keep an exposure to Mileway if they think it has long-term value. Blackstone said the majority of the investors in the new vehicle will be existing investors.
The value put on the portfolio is €21B, but Morgan Stanley is now running a "go shop" process. Because the assets are being sold from one Blackstone fund to another, an external sales process will be undertaken to check that another buyer would not be willing to pay more.
The profit comes from Blackstone building up a portfolio of scale and then selling to investors with a lower cost of capital, along with the general uptick in urban logistics values over the last five years,
Who Are The New External Investors?
React News reported that GIC will take a stake of up to 20% in Mileway, which would put its investment at as much as €4.2B, including debt. The size of the stake could change depending on how many existing investors roll into the new vehicle.
GIC has been one of the biggest backers of logistics globally. It bought big-box logistics firm P3 for €2.4B in 2016 and last year recapitalised a fund managed by EQT Exeter in a €3.1B deal.
Is This Deal All About E-Commerce?
Clearly the growth of Mileway and the huge price put on the business has been helped by the continued growth of online retail, which was turbocharged during the pandemic. But a public debt issuance highlighted it is not just Amazon and its online peers making up the company’s occupier base.
In 2020, a £518M loan secured against 285 Mileway properties in the UK was securitised. The circular sent to investors buying the debt showed that only a fifth of the tenants were in the transportation and storage sector, with 30% in manufacturing and 16% in wholesale and retail, rating agency DBRS said.
Rental growth in the sector is being fuelled by demand coming from growing companies in the e-commerce sector, but also by lack of supply for any company that needs light industrial property, even from outside the online world.
Putting The Deal In Context
Blackstone said the deal was the “largest private real estate transaction ever”, and in that sense it has beaten its own record: The previous largest deal was Blackstone and Wells Fargo’s purchase of GE Capital’s real estate loan book for $23B in 2015.
It is the largest European real estate deal of any stripe, also beating a Blackstone deal — the company sold its European big-box logistics business, Logicor, to the China Investment Corporation for €12B in 2017.
The largest real estate deal ever, including public companies, was also undertaken by — you guessed it — Blackstone, when it bought listed company Executive Office Properties for $38B in 2007.