Inside Blackstone’s Asset Management Playbook For A 1.1M SF Former Post Office Depot ... With A Train Line Running Into It
Whenever you buy a portfolio of any significant size, there is usually an asset that doesn’t quite fit any preconceived business plan for how you’re going to make money on a deal. And when Blackstone made a $3B splash in the Nordic property market in 2015, that was especially true.
The world’s largest real estate investor was buying the assets of Obligo, the Swedish fund manager that was looking to dispose of its real estate business in one fell swoop. There were offices and industrial properties that could be leased up and sold off. But there was also a 1.1M SF former postal sorting office, a complex of five buildings each five stories high, with warrens of corridors and one building containing a cavernous rail depot with four train lines running in and out.
Built in 1983 for PostNord, Sweden’s postal service, it is a well-known building in Stockholm, and won the country’s top architectural prize when it was built. But totally vacant and not fitting into an easy category, it needed a lot of thought. It was the largest single asset in the portfolio, and getting the repositioning of the building wrong would eat into returns.
"We took the asset on when we bought a much larger portfolio, because we sought to provide the selling investors with a wholesale solution,” Blackstone Head of Europe James Seppala told Bisnow as he talked through the company’s asset management strategy. “We knew it would be an interesting challenge because it is such a unique building, but we felt confident we could come up with a business plan. And ultimately, on a per square meter basis, we felt we were buying real estate in central Stockholm at a discount to replacement cost. Sometimes you just have to take a view and get comfortable based on your basis in the underlying real estate and the strength of a given location.”
The building is now about 85% leased. Blackstone targeted public sector style tenants and private sector companies needing space that has room for both offices and research and development facilities — that big train hall became a feature rather than a bug.
Scandinavia leads the world when it comes to sustainability, and to appeal to tenants, Blackstone put 1,500 photovoltaic cells on the complex’s vast roof, the largest rooftop solar installation in Stockholm. That has been a big appeal to tenants, Seppala said. It will provide 30% of the building’s energy, excluding the private areas where tenants purchase their own electricity.
Seppala said Blackstone knew the building would need to be repositioned as office space that would appeal to tenants looking for good value, and the building’s location helped that. It is located in the Stockholm district of Solna, about 20 minutes by car to the north west of the city’s central business district.
One possibility to fill the space was appealing to the startups in Stockholm’s strong tech scene, the sort of firms that typically look for cheap repurposed space in interesting buildings. But those firms typically lease 50K SF or less, and with 1.1M SF to lease, that is a lot of tenants to find.
Instead, Blackstone decided to focus on government agencies and academic institutions, also in the market for low-cost space, but which typically take larger leases.
"What we've tried to do is create high-quality but affordable space for tenants — government agencies, academic institutions, companies that need R&D space, but close to the city centre, so they can be close to where the talented workers are,” Seppala said.
Tenants include Stockholm’s municipal transport authority; Thoren Business School and its sister Thoren Innovation School; Sweden’s government agency with responsibility for issues of protection against accidents, crisis preparedness and civil defence; and PostNord, which moved some of its operations back into the building.
Amenities to attract tenants include an on-site gym, changing rooms and space to park 530 bikes.
On the private sector side, green battery company Northvolt was attracted by the fact that the large building could offer space for R&D facilities. And that train hall? French vaccine manufacturer Valneva is using it as a facility to bottle Covid-19 vaccines. Longer term there is the possibility that it could be used for last-mile logistics, depending on the delta between office and logistics rents.
Sometimes the most challenging assets in a portfolio can yield the most creative results.