Meet Blackstone’s Two £5B Mr. Fix-Its
The mantra that has made Blackstone the biggest property owner in the world is buy it, fix it, sell it.
It is the buying and the selling that gets most of the attention. But if it did not improve the assets it bought, the returns it makes would be far less impressive.
In the U.K., the task falls to Blackstone Property Management, led by Director Ed Hodgson and senior portfolio manager Danny Egan.
The pair gave Bisnow an insight into the programme they are undertaking to ensure Blackstone turns a significant profit on the near £5B of London offices the company has bought since 2009. The strategy takes in everything from bleeding-edge technology, to the methods of co-working companies, to burritos.
The portfolio they manage comprises 12 assets from Chiswick Park in the west to 25 North Colonnade in Canary Wharf in the east, totalling around 4.4M SF.
In terms of traditional real estate asset management, Hodgson flags up strategies the company has used that even five years ago might have seemed counterintuitive, but are now becoming increasingly common as flexible working becomes more prevalent.
“One thing we’ve done which might be to the detriment of upfront income is take the best spaces in a building and make them a communal area,” he said, pointing to the example of the 94K SF River Building in the City, where it has installed an 8K SF atrium and opened up a 3K SF roof terrace overlooking the Thames.
“Tenants think, I’m not paying for this but I am getting the benefit of it, and it creates a point of difference. We want someone like me to have the same experience of a building as the chief executive. We are trying to push people towards these spaces,” by making them pleasant places to work and introducing high-quality WiFi, he said.
One of the first tenants in the building is tech firm Deliveroo, the kind of firm that would typically not have taken space previously in the City. He points to similar successes, such as the leasing to hip advertising firm Droga 5 at Devonshire Square, the 630K SF estate of buildings it bought next to Liverpool Street in the City for £350M in May 2012. It has refurbished space and converted office space to a private members club.
Buildings with big vacancy like the Adelphi building in the West End and 20 Old Bailey are now fully leased and likely to command strong interest when put up for sale.
Chiswick Park is also a proving ground for technolgical innovation. Last week it introduced a new app there created by District Technologies. It allows the 9,000 people working on the park to connect and communicate with each other, and tells them about retail and restaurant offers.
It is the former function that is perhaps the most interesting. Fast-growing co-working behemoth WeWork argues that a huge part of its value comes from the app that links its thousands of members. The technology is not exactly the same, but Blackstone is essentially a traditional landlord looking to create the same connections between its tenants and leverage its scale. The technology could be rolled out across its entire London portfolio.
“It’s a free benefit that allows us to create a network that’s beneficial for our tenants,” Egan said. Blackstone is also looking into smart technology that can be linked up with apps that allow tenants to control their office environment, such as air conditioning.
It has also partnered with a company called Street Dots, which allows street food vendors to bid to take one of the pitches available on Chiswick Park via an app. That means there is a constantly changing roster of vendors on the park.
Around 1M SF in the portfolio is still available, meaning there is still work to do before Blackstone will have completed the "fix it" part of the strategy and sold the assets that it needs to. And with tenant demand and interest from buyers more subdued than in the past few years, it will be more difficult from now on in. But it is already in line for a significant profit from its assault on London.
Blackstone has spent around £4.7B on London offices since November 2009, according to data compiled for Bisnow by Real Capital Analytics. It has subsequently sold £3.2B. Sales and refinancing could mean Blackstone recoups almost £6.5B.
Buildings like the River Building, 25 North Colonnade, and the Sanctuary Buildings still need to be fully leased and and sold in a more difficult London market.
Hodgson said demand from tenants is not deep at the moment, but there is enough demand that “if you have a good building and the right kind of space then tenants will come”.
If he is right, and Blackstone can improve the value in a manner similar to that achieved on its previous London acquisitions, an already profitable assault on London will get even better.