You could hardly open your paper, or smartphone, these last few days without seeing screaming headlines about GE’s exit from finance, particularly real estate finance, and the redoubled investments by major players Blackstone and Wells Fargo.
While some have reported the story around GE’s exit, the more interesting angle is why are Blackstone and Wells Fargo doubling down and intensifying their investments in Commercial Real Estate (CRE), both inside the US and beyond. Sitting as they do on available cash and investment hypotheses, and with the data to quickly power their decisions, these two were ready, and able, to pounce.
Reportedly, Blackstone spent no more than four furious weeks poring over GE Capital’s books and asset records, trying to understand how hot, or steaming, were the assets they would be buying. This culminated in the multi-portfolio transactions announced on April 10. It’s understandable why Blackstone would grab this brass ring, across all asset classes – after all, Blackstone’s own assets take different forms. These depend on which business unit was involved and their underlying strategy – but certain themes resonate across the Blackstone portfolio.
First of all, though often described as a major player in the office market (true), Blackstone is a more balanced investor, taking substantial bets on the Multi-Family space, as well…. as one indication, recall that Blackstone made a $2.7 billion buy of Multi-Family assets in the South in 2013, from none other than GE Capital. Closer to home, Blackstone has definitely drunk the middle-market, Multi-Family Kool-aid, and not only regarding Manhattan buildings, either. They have a strong mid-market focus – look no further than our sampling of Blackstone’s current loan assets in NYC, owned through different arms of the firm.
In fact, Blackstone’s taken bets on “brand NYC” in multiple ways – with sizable Multi-Family bets placed, among other things, on the resurgence of 3rd Avenue in the 50’s and even on the ongoing comeback of Queens. Consider the following few loans, which tell the story of Blackstone’s bets, and a strong NYC housing market, in general.
To understand the nuances, recognize that Blackstone operates through multiple arms.
While some of its loans are done through its Blackstone Real Estate Debt Strategies arm (BREDS), a private lender, several of its big Multi-Family loans were made through its public mortgage REIT, branded as Blackstone Mortgage Trust (BMT), and in particular via its affiliated Parlex family of investment entities.
1130 3rd Avenue
As examples, 1130 3rd Avenue and 1033 3rd Avenue are both large Multi-Family buildings on 3rd Avenue (obviously), situated near-kitty corner in the 60s. They are similar in size (240-280,000 sq. ft.) and vintage, and have gone through renovations in 1987 and 2012, respectively. Both are in a strong neighborhood that, according to census data has average income of $200,000.
Based on these strong indicators, and others, Blackstone decided to put quite a bit of money to work – lending $135M to 1130 and $127M to 1033 in 2014. These loans sit alone in the capital stack (at least the mortgage-backed part of it).
Their investment theses are being tested on the West Side as well. Through a debt-investment arm, BREDS UWS LLC, an investment was made in 641 Amsterdam, another large Multi-family, this time on NYC’s Upper West Side in the 90s. It’s approx. 170,000 square feet of rental housing space are also located in a strong neighborhood (gross income of $200k), have medium-to-strong reported revenues, and are in a building that was renovated in 2004. All of this affirms their overall bet on the need for New Yorkers (and New Yorker wannabe’s) for housing.
This belief extends to outer boroughs, as well as core Manhattan. Look no further than a $167M financing (including both construction and acquisition loans) on a portfolio of nine buildings in 2013.
The borrower/sponsor was an SPV that is an affiliate of A&E Real Estate …who Blackstone clearly deemed to be a good credit. The buildings collateralizing the loan encompass multiple addresses across the boroughs – in addition to tony Manhattan were Yankee Stadium-adjacent properties. This loan was subsequently severed in 2014 into two loans: $89M to a core group of seven properties and $60M to two Manhattan properties. Once again, the theme: good neighborhood and good revenue base in the NY rental housing market.
Even with all of this Multi-Family focus, Blackstone continues, of course, to be heavily involved in US Office real estate. As one example – it is widely
known that they acquired a large office portfolio from Equity Office Properties Trust in 2007, which included 1095 Avenue of the Americas, among other properties. This property was recently sold to a unit of Ivanhoe Cambridge, the big Canadian investor owned by Quebec’s public pension fund. The deal was financed by German American Capital Corporation. This is a major office building in the 40s on Avenue of the Americas, with a sweet roster tenants that range from Lloyds Bank to Dylans Candy Bar. The tower was built in 1972, renovated in 2007, and is well-located near Bryant Park.
GE may not be interested in a further roll of its dice… but both NYC real estate and Blackstone are on a roll. With “I love NY” clearly on the tongues of so many, market trends are important drivers of moves by Blackstone and others. Smart investors and lenders, especially those sitting on available cash, investment hypotheses and data to power them, are thus able to pounce on these opportunities when they arise.