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Blackstone Doubles Down On Life Sciences By Selling BioMed Realty Trust To Itself For $14.6B

The life sciences building at 500 Kendall St. in Cambridge, Massachusetts

One of the biggest real estate investors in the world just made a deal that reinforces how the life sciences industry has been supercharged by the coronavirus pandemic.

Blackstone Group announced in a press release Thursday that one of its funds, Blackstone Real Estate Partners VIII, has agreed to recapitalize its ownership of BioMed Realty Trust, the largest private owner of life sciences real estate in the country. The finite BREP VIII will sell BioMed to a new, permanent fund managed by Blackstone, yet to be named publicly, for $14.6B.

The internal transaction is the first of its kind Blackstone has attempted, and it values BioMed at $6.5B more than when BREP VIII purchased it in 2016. In order to confirm the price's legitimacy, the private equity titan consulted with Morgan Stanley, which will now shop BioMed around to see if an outside buyer would pay a higher price before the sale becomes final.

The profit is the third-highest a Blackstone fund has ever pulled in from a previous acquisition, behind its mammoth piecemeal sales of Hilton and Equity Office Properties that brought in $14B and $7B, respectively, The Wall Street Journal reports.

Investors in BREP VIII will have the choice of cashing out from that value jump or simply transferring their shares to the new fund, Blackstone said in its press release. Blackstone co-Head of Global Real Estate Kathleen McCarthy said the move was made because of the number of investors who prefer the second option.

"In real estate, many of our investors are eager to maintain or increase their exposure to life science office, and this recapitalization enables them to do that," McCarthy said in a statement issued with the press release.

BioMed owns a total of 11.3M SF in life sciences real estate across most of the largest established life sciences markets in the Western Hemisphere: Boston/Cambridge, Massachusetts; the San Francisco Bay Area; San Diego; New York; Seattle; and Cambridge in the United Kingdom. Since its acquisition by Blackstone, the company has either completed or commenced 3.3M SF of new construction and boosted its overall occupancy from 91% to 97%, the WSJ reports.

Powered by the urgent demand for a coronavirus vaccine, life sciences real estate has been among a select few sectors in the industry that have grown since the pandemic began — and Blackstone has heavily invested in most of them, from e-commerce distribution centers to studios for streaming video companies.

Blackstone has also attempted to set itself up for some of the more negative effects of the pandemic-driven recession. The company is winding down a $220M CMBS debt fund after its valuation was pummeled (like the whole retail and hospitality sectors of CMBS lending). Meanwhile, it closed a fund for more traditional real estate lending worth $8B — the largest ever of its kind.

Blackstone's other co-Head of Global Real Estate, Ken Caplan, said on a Bisnow videoconference in September that the company will move to acquire distressed assets when the economy is closer to a recovery.