Logistics & Industrial/Commercial Valuations Are Now In Question

The World Needs Warehouses Now, and Blackstone’s Got Them
OK . . but do read more [the valuations are now in question]

Before the coronavirus crisis, private equity made a big bet on logistics facilities.

By Noah Buhayar        

@NBuhayarMore stories by Noah Buhayar
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CAUTION INSERT 1
"Venture capital (VC), another part of the private universe, is feverish. SoftBank’s Vision Fund, a $100bn private-capital vehicle backed by Saudi Arabia’s sovereign-wealth fund, has funnelled cash into fashionable, unlisted startups. Other institutions have vied with it to write big cheques for Silicon Valley’s brightest new stars. 
Already some of these bets have gone awry. . .

"The flood of capital into private markets ultimately rests on the belief that they will outperform public ones. There is evidence for this—in the past the best-run private-capital managers have beaten the returns from public markets, even after generous fees. And there are grounds to believe that this was no statistical fluke. Private capital, say its boosters, reduces “agency costs”. These arise wherever somebody (the principal) delegates a task to somebody else (the agent) and their interests conflict. Consider the public markets—no one has a big enough stake to make it worthwhile to monitor firms, which as a result get complacent or indulge in short-term earnings management to the detriment of the long term. Private capital, which is closely held in a few hands, is supposed to get around such agency problems.

Yet every investment craze is liable to overreach, blindness to risk and misallocated capital. Recent converts to the private world, dazzled by the historical returns, may not fully appreciate the hazards . . "

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CAUTION INSERT 2
Asset Management: PRIVATE CAPITAL/PRIVATE DEBT MARKETS > Buy-Outs & Property

"Worldwide, pools of private capital, including private equity and private debt, as well as unlisted real-estate and hedge-fund assets, grew by 44% in the five years to the end of 2019, . . . A different way to capture the scale of the private party is to look at the quartet of Wall Street firms that specialise in managing private investments for clients — Apollo, Blackstone, Carlyle and KKR.
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BLOGGER NOTE: What appears in this post are selected snippets taken from

Everyone now believes that private markets are better than public ones

The Economist | Jan 30th 2020

EXIT: from low-productivity “sunset” firms
ENTRY:  into more productive “sunrise” firms.
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"Their total managed assets have risen by 76% in the past five years, to $1.3trn.
They have long specialised in buy-outs and property.
More recently they have grown in private-debt markets, too—in total their funds’ credit holdings have hit $470bn
MORE > https://mesazona.blogspot.com/2020/02

_________________________________________________________________BLOGGER INSERT: They sure did 
Here's an earlier post from this blog
MesaZona > Table of Contents : Here's The Menu. Enjoy

03 June 2019

Word-of-the-Day = Logistics

Press Release Jun 02, 2019 https://www.blackstone.com/media 

Blackstone to Buy U.S. Logistics Assets from GLP for $18.7 Billion         

Deal will be the largest-ever private real estate transaction globally

Singapore and New York – GLP and Blackstone today announced that they have entered into an agreement for Blackstone to acquire assets from three of GLP’s U.S. funds for a purchase price of $18.7 billion.

__________________________________________________________Blackstone Bets on E-Commerce With $18.7 Billion Logistics Deal 
By Peter Vercoe     ‎June‎ ‎2‎, ‎2019‎ ‎6‎:‎10‎ ‎PM 
Updated on ‎June‎ ‎2‎, ‎2019‎ ‎9‎:‎53‎ ‎PM    
In context from https://www.bloomberg.com/news

Blackstone Group LP is doubling down on the future of online shopping, agreeing to buy $18.7 billion of U.S. logistics assets from Singapore’s GLP Pte in what it says is the world’s biggest private-equity real estate deal.Blackstone will gain 179 million square feet of warehouse assets, greatly expanding the size of its U.S. industrial footprint, the New York-based company said in a statement late Sunday

This overall transaction totals 179 million square feet of urban, infill logistics assets, nearly doubling the size of Blackstone’s existing U.S. industrial footprint.

Blackstone Real Estate’s global opportunistic BREP strategy will acquire 115 million square feet for $13.4 billion and its income-oriented non-listed REIT, Blackstone Real Estate Income Trust (BREIT), will acquire 64 million square feet for $5.3 billion.

Ken Caplan, Global Co-Head of Blackstone Real Estate, commented: “Logistics is our highest conviction global investment theme today, and we look forward to building on our existing portfolio to meet the growing e-commerce demand. Our global scale and ability to leverage differentiated investment strategies allowed us to provide a one-stop solution for GLP’s high quality portfolio.”

Alan Yang, Chief Investment Officer of GLP, said: “GLP was able to leverage our deep operating expertise and global insights in the logistics sector within four years to build and grow an exceptional portfolio. We are proud of the business our team built and are confident it will continue to flourish under Blackstone’s leadership. We are looking forward to expanding our footprint in the United States to continue to seize key opportunities in the U.S. market.”

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As stores from California to New York shut to slow the spread of the novel coronavirus, Amazon.com Inc.’s massive fulfillment centers are a hive of activity. Demand for household staples has been so frenzied that the e-commerce giant is temporarily limiting shipments of nonessential items to its facilities. It also wants to hire 100,000 workers to improve operations—at a time when millions of people in other industries are likely to lose their jobs. 
The moves have underscored the value of a type of building that real estate investors were already snapping up: warehouses.
Last year, Blackstone Group Inc. bought more than $25 billion worth of industrial properties, which include warehouses and logistics facilities, according to Real Capital Analytics. The private equity firm now owns more of this space in the U.S. than any group except real estate investment trust Prologis Inc., which has also been getting bigger through acquisitions. The two companies have about a billion square feet between them, more than their next 10 largest competitors combined, according to CBRE Group Inc.
In a world where online sellers are poised to accelerate their gain in market share, some see Blackstone, Prologis and other landlords benefiting from one of the few bright spots in a bleak investing landscape. “There’s no doubt that growing e-commerce sales is a secular tailwind that will persist no matter the economic environment, especially now that it’s impossible to buy something in a physical store,” says Eric Frankel, a senior analyst at Green Street Advisors. “That’s the main bullish thesis of why industrial is going to be OK.” But the depth of the recession the U.S. is facing puts investments in even the most essential businesses under a cloud.
Well before the coronavirus, real estate investors were drawn to the fundamentals of warehouses—and were paying high prices for them. The supply of space close to cities that’s needed for last-mile delivery was particularly tight, and vacancy rates across the industry have hovered below 5%. That’s allowed landlords to pass along regular rent increases to tenants, helping to boost the value of these properties by 34% in the three years that ended Feb. 29, according to Green Street.
Even with robust demand from the likes of Amazon, those valuations are now in question. . . "
READ ON > Bloomberg News 24 March 2020