So much money, but where to spend it? For opportunity fund investors looking at real estate, right now the only place to go is the stock market.
At the start of 2020, private equity funds had $164B of equity to invest in real estate, according to data from Preqin. A huge global recession should be the ideal time to have money to invest.
But as Blackstone global co-head of real estate Ken Caplan pointed out on a Bisnow webinar earlier this month, when trouble hits, distressed deals for hard assets don’t typically start to emerge for some time. And so Blackstone and its peers have been making a bet that the decline in the share prices of commercial real estate stocks has gone too far.
The latest such investment came from KKR, which on Friday revealed that one of its European funds had taken a 5% stake in Great Portland Estates, a central London office REIT with a market capitalisation of £1.6B.
The deal prompted shares in Great Portland to jump 11% on Monday — a nice little profit already for KKR. It bought its stake at a share price of around 552p a share, paying around £75M.
Great Portland is regarded as one of the highest quality REITs in the UK, with a portfolio concentrated in central London offices, but stock market investors are anticipating a big fall in the value of its assets.
Its shares fell from a high of 966p in February to a low of 550p when the coronavirus pandemic hit in March. They recovered to 749p in April before drifting back toward their 12-month lows, a price that attracted the attention of KKR.
Brookfield bought a 7% stake in British Land in May, which it increased to more than 9% earlier this month. Similar to Great Portland, British Land’s shares recovered in the late spring and early summer but were trading at their March lows on Friday.
News of KKR’s deal seems to have caused a general rise in the share price of London office REITs, with BL shares up 7% on Monday, Landsec shares up 8% and Derwent shares up 7%. Shares rose generally across the globe on better than expected economic data, but UK REIT shares outperformed the broader market.
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