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Blackstone Dominates The Biggest CRE Transactions In The U.S. This Year

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The U.S. investment sales market in commercial real estate has been awash in capital for some time now, looking for big deals in which to deploy meaningful chunks of cash all at once. But opportunities for massive spends are always few and far between.

Handshake file photo

With such intense competition for the largest deals, per-SF prices can be higher than they would be in more modest transactions — especially in the case of portfolio transactions, CBRE Vice Chairman and Managing Director Jack Fraker said.

“If you go to Walmart and you buy 10 boxes of Cheerios, you get a discount for volume,” Fraker said. “But for big portfolios, it’s the opposite.”

In the case of single-asset transactions, buyers are willing to pay a premium for the surest bets in the market: trophy assets in the biggest markets, with long-term leases in hand. Even though the big spenders out of China have retreated from U.S. markets, sellers of the best real estate have been able to get their desired returns.

Here are the biggest transactions in U.S. commercial real estate this year so far, ranked by sales price and split between single-asset sales and portfolio sales. Data for these lists have been supplied by Reonomy, CBRE and Bisnow’s own research and reporting.

Portfolio transactions

5. Blackstone buys $1.24B industrial portfolio

Blackstone Dominates The Biggest CRE Transactions In The U.S. This Year
The interior of an Amazon distribution center in Baltimore

It comes as little surprise that the largest private equity investment firm in the world would show up on this list multiple times. Blackstone Group’s purchase of a 38-property industrial portfolio from an entity called Space Center RE is the second-largest portfolio sale in the sector this year, but it was dwarfed by the largest such transaction, when Blackstone was also the buyer.

The lion’s share of the 20M SF Space Center portfolio is located in California, with additional properties in Illinois, Florida, Texas, Tennessee, Minnesota, Georgia, Mississippi, Indiana and Missouri. CBRE and Eastdil Secured helped broker the transaction, which included both new-construction distribution centers and older, urban warehouses that can be either modernized or eventually redeveloped into other, higher-rent uses, Fraker said.

The portfolio is largely stabilized with long-term leases that will be expiring in the next few years, Fraker said, which is a plus in industrial. That differs from an office building, where the safety of a longer lease has value — it all comes down to the retail industry’s ongoing need for more distribution centers as rents have risen to record highs.

“The rents on the rent roll may have been negotiated five or seven years ago in a softer economic cycle, so they’re below current market rents,” Fraker said. “Investors really like to buy those kinds of rent rolls, because they know that when that tenant’s lease comes up for renewal, they can increase the rent to market rates.”

4. Welltower buys medical office portfolio for $1.25B

Medical offices, dental office

Welltower Inc., a publicly listed REIT focusing in senior living and healthcare real estate, has been among the most active companies in the country doing deals in the rarefied air above $1B. It kicked off the year by purchasing a 55-building medical office and outpatient facility portfolio from CNL Healthcare Properties in a transaction that was announced just a couple of days into January.

Like industrial, healthcare and senior living properties are seen as safer properties to own when the economy takes a turn for the worse. Both asset classes fill needs that arise for groups of consumers regardless of their financial situations.

Healthcare in general has migrated away from a model built around massive hospital hubs to a more decentralized system that emphasizes speed of care and proximity to patients. As technology advances and more procedures can be done in outpatient facilities, Welltower’s acquisition supports the narrative that is playing out in the industry at large.

3. Welltower sells senior housing portfolio for $1.8B

Senior Housing

Though Welltower has been a net buyer in 2019, its largest single transaction was a sale of 48 senior living properties in New England to a private institutional buyer for $1.8B at the start of August.

Welltower had co-owned the properties with local developer Benchmark Senior Living, which also operated the facilities and will continue to do so with its new partner. Benchmark didn't sell its share in the 4,137-unit portfolio, which carried $24M of secured debt that the buyer paid off as part of its acquisition.

In addition to its medical office building purchase earlier in the year, Welltower has entered into several joint ventures to maintain a strong market share in senior housing. The REIT joined with Discovery Senior Living for a $216M purchase of three Texas properties, while signing a separate $1B development deal with Discovery.

Welltower has also purchased portfolios of senior housing properties from Balfour Senior Living and Clover Management, both in deals worth north of $200M. In both cases, the seller entered into management and/or development partnerships with Welltower, signaling future joint projects and potential acquisitions.

2. Eldorado, Vici and Caesars' complicated deal

Blackstone Dominates The Biggest CRE Transactions In The U.S. This Year
Harrah's New Orleans Hotel & Casino in 2010

Eldorado Resorts' acquisition of larger competitor Caesars Entertainment Group in June came with plenty of moving pieces so that Eldorado could afford the $8.6B price tag. Part of the complications involved Vici Properties, a REIT spun off from Caesars to control its real estate.

To help fund the acquisition of Caesars, Eldorado sold the real estate associated with three casinos to Vici: Harrah's New Orleans Hotel & Casino, Harrah's Resort Atlantic City and Harrah's Laughlin Hotel & Casino at the southern tip of Nevada. The transaction was valued at $1.8B, with modified lease agreements bringing Eldorado's revenue in the deal to $3.2B.

Vici already owned Harrah's Las Vegas and the flagship Caesars Palace casino, which Caesars Entertainment runs through an operating partnership agreement. With Caesars now under the umbrella of Eldorado, a similar arrangement has been made between the new company and Vici.

Eldorado is based in Reno, and mainly owned casinos in the South and Midwest prior to its acquisition of Caesars.

1. Blackstone's $19B buyback

Blackstone Dominates The Biggest CRE Transactions In The U.S. This Year

Blackstone's purchase of Singapore-based GLP's U.S. portfolio, the second-biggest in the country to Prologis at the time, blew every other transaction this year out of the water, with a price tag of $18.7B for 179M SF of distribution centers in June.

Making the deal even more eyebrow-raising is the fact that Blackstone had owned most of the very same buildings before selling them to GLP in 2014 for $8.1B. That was GLP's entrance into the American market, and it capitalized on its initial splash by selling about $1B worth of the original portfolio.

From there, GLP added a substantial number of properties to its roster, increasing the portfolio's total footprint by 62M SF. GLP had been considering an initial public offering of its American business before Blackstone and other private buyers, namely Prologis, stepped in and fought to buy it outright.

Blackstone's willingness to pay a high premium for assets it had already sold did more than underscore industrial real estate's value in the present environment; it changed the value proposition for the entire industry, Fraker said.

“That deal in and of itself had a ripple effect across all the industrial investors in the world," Fraker said. "They said to themselves, ‘If Blackstone really likes that asset class, then we should like it, too.’”

Rents have been growing at such a high pace in the sector that potential buyers are putting even more value on leases set to expire in as little as three years, according to Fraker. Investors seem undeterred by the rapidly escalating trade war that will soon add or increase tariffs to virtually every good shipped to the U.S. from China.

"Even if there’s a recession or volatility, the online shopping part of our industry will continue to grow dramatically, and will likely transcend any economic recession or setback," Fraker said. "That’s the prevailing thought from most industry observers.”

Single-asset transactions

5. Blackstone buys U.S. Bank Centre in Seattle

Blackstone Dominates The Biggest CRE Transactions In The U.S. This Year
The U.S. Bank Centre office building in Seattle as of 2016

Blackstone's presence is also felt at the top of the office market, which was responsible for all five of the most expensive single-asset transactions this year. Its subsidiary, EQ Office (formerly Equity Office Properties) purchased the U.S. Bank Centre in Downtown Seattle for $611M in June, according to Reonomy data.

Publicly, the deal was part of a two-building acquisition worth $1.2B, with the other property being Wells Fargo Center. Situated on a full block at 999 Third Ave., the nearly 1M SF building sits just a few blocks away from the 922K SF U.S. Bank Centre at 1420 Fifth Ave. 

Ivanhoé Cambridge was involved in the sale of both buildings: It was the sole owner of the U.S. Bank Centre and 50% owner of the Wells Fargo Center. The other half had been owned by Dubai-based Emaar Investment Management. Ivanhoé purchased each building in the late 1990s, paying $236M for the U.S. Bank Centre in 1998.

Driven by a tech industry centered around Amazon, Seattle's office market is one of the strongest in the country. With an estimated 6.5M SF under development, the city's office landlords aren't concerned about WeWork's controversial IPO prospectus, despite Seattle being one of the markets with the most WeWork locations.

4. Onni Group buys Wilshire Courtyard

The Wilshire Courtyard in Miracle Mile Los Angeles
The Wilshire Courtyard in Miracle Mile Los Angeles

Vancouver-based Onni Group is better known as a developer in cities like Los Angeles and Chicago, but that didn't stop it from making one of the biggest acquisitions of a stabilized asset in the country this year. The company dropped a reported $630M in June on the two-building Wilshire Courtyard office development in the Miracle Mile neighborhood of LA.

Built in 1987, both buildings in the 1M SF Wilshire Courtyard stand six stories tall and sprawl across a combined 8.7 acres. Tishman Speyer acquired the property in 2012 for $422M, renovated it and sold it seven years later at a tidy profit. At 5700 and 5750 Wilshire Blvd., the campus sits across the street from the Screen Actors Guild office and a block away from the La Brea Tar Pits.

Almost immediately after closing on its purchase, Onni Group added to the tenant roster that already includes Fox Animation Studios and The Hollywood Reporter by signing The We Company to a 130K SF lease, The Real Deal reported. With four floors at 5750 Wilshire Blvd., WeWork will have its 30th LA location but first within the Miracle Mile neighborhood.

Questions about WeWork's ability to fulfill the terms of a long-term lease will be crucial to Onni Group, which took on a $550M loan from international investment bank Natixis to fund its acquisition.

3. Jamestown buys Levi's Plaza for over $800M

Blackstone Dominates The Biggest CRE Transactions In The U.S. This Year
The entrance to one of the office buildings at Levi's Plaza in San Francisco

Jamestown Properties has experience buying and redeveloping massive properties as mixed-use destinations all over the country, but its latest, largest acquisition does not need much help on that front — hence the massive price tag.

Jamestown acquired Levi's Plaza in San Francisco in late July for an undisclosed price, but Real Capital Analytics data listed the transaction's value at $820M, the San Francisco Chronicle reported. The 955K SF campus is made up of nine buildings that comprise the headquarters of denim retailer Levi Strauss & Co., integrated with copious public space. 

Since the first building of the complex was completed in 1982, Levi's has known no other home. The company's lease, which runs until 2022, was unaffected by the sale, Levi's told the Chronicle. Selling the asset was a partnership of owners including Gerson Baker  and Associates, the Chronicle reported. 

Despite San Francisco's reputation as one of the centers of the tech world, Levi's may have had the most successful IPO of any company based in the Bay Area this year. Unlike Uber and Lyft, which missed their valuation targets on the open market, Levi's beat its own projections by raising $623M at a $6.6B valuation, Reuters reported.

Jamestown also owns tourist destination Ghirardelli Square in San Francisco, and was the beneficiary of the second-largest building sale in New York City history last year when it sold Chelsea Market to Google for $2.4B.

2. WeWork's landmark real estate deal

Blackstone Dominates The Biggest CRE Transactions In The U.S. This Year
The Lord & Taylor Building on Fifth Avenue in New York

Even for a company that seemingly adds to its list of projects every week, The We Company's acquisition of the former Lord & Taylor flagship department store at 424 Fifth Ave. in Manhattan looks like an outlier. The $850M deal closed in February, over a year after it was initially announced, by far the largest asset in the portfolio of a company that mostly leases from other owners.

The official buyer of the property was WeWork Property Advisors, a joint venture of WeWork and Rhône Capital that had $926M in assets under management, according to public filings in May. Rhône co-founder Steven Langman purchased a portion of Lord & Taylor parent Hudson's Bay Co. as part of the 424 Fifth Ave. deal back in 2017.

A major factor in the delayed closing was the struggle to finance the acquisition, and the final deal tacked nearly another $1B to WeWork's already prodigious debt load. A coalition led by JPMorgan Chase and Starwood Capital provided a loan of $900M, $600M of which funded the transaction. The remaining $300M will go toward converting the department store to office space.

Langman isn't just a partner in WeWork Property Advisors and Hudson's Bay; he was an early board member of WeWork and is one of two members of the company's executive compensation committee, The Wall Street Journal reports. An LLC he controls owned 2.28 million shares of WeWork at the end of 2017.

Even though WeWork CEO Adam Neumann has attempted to distance himself somewhat from previous property deals that made him the owner of buildings leased to his own company, WeWork's property ownership remains entangled with the rest of the multifaceted organization's business dealings.

After closing the $850M deal, WeWork Property Advisors folded into The We Company's new investment arm, called ARK and backed largely by Ivanhoé Cambridge. Neumann claims to have sold his personal ownership stakes in WeWork-leased buildings to ARK, but Rhône holds a 20% share of ARK and Langman serves as its chairman. ARK plans on leasing mainly to WeWork.

When its purchase was first announced, WeWork planned to move its corporate headquarters into 424 Fifth Ave., which would still lease three stories to Lord & Taylor. In the months since, the store has closed and Amazon has emerged as a potential tenant — not as an enterprise member of WeWork, but with a traditional lease. Renovations led by Bjarke Ingels Group are ongoing, but who will enjoy them is still up in the air.

1. AT&T's sale-leaseback at 30 Hudson Yards

Blackstone Dominates The Biggest CRE Transactions In The U.S. This Year
30 Hudson Yards entrance, viewed from 33rd Street and 10th Avenue

When Time Warner declared its intention to leave its Midtown headquarters and move into 30 Hudson Yards, it did so not by signing a lease, but by buying 1.4M SF office space as a condo to help fund the building's construction.

After AT&T acquired Time Warner and formed WarnerMedia for $85B, it began looking for ways to pay down the debt it took on to finance such a massive deal. One such cash-raising move was to sell that office condo back to Hudson Yards developer Related Cos. for $2.2B and become a standard tenant in the end.

As the deal was in negotiations, German investment firm Allianz SE paid $384M for a 49% stake in the condo. Deutsche Bank and Wells Fargo, which owns its own 500K SF office condo in the same building, provided debt financing for the transaction.

Standing 1,296 feet tall and containing 2.6M SF, 30 Hudson Yards is the biggest building in the Far West Side mini-city and the second-tallest office building in the city behind One World Trade Center. After WarnerMedia fully departs its former headquarters at One Columbus Circle, it will be replaced by Deutsche Bank.

As impressive as the $2.2B figure is, it doesn't match Google's $2.4B purchase of Chelsea Market, which topped the charts in 2018. The transaction also stands alone as the only single-asset deal in the U.S. to even top $1B so far this year, which could be due to the slowest year for transaction volume in New York since 2015.