In one of the biggest deals in commercial real estate globally, the world's top alternative assets manager Blackstone and American financial services firm Wells Fargo have inked an agreement to buy almost all of the assets of GE Capital Real Estate in a transaction valued at approximately $23 billion.
The transaction does not involve assets in India but shows the voracious appetite of Blackstone in the commercial realty space. Blackstone is already the largest institutional investor in the Indian commercial property business.
The global deal involves Wells Fargo purchasing first mortgage commercial real estate loans valued at $9 billion in the US, the UK and Canada.
Blackstone’s latest flagship global real estate fund, BREP VIII, will buy the US equity assets for $3.3 billion. These assets are primarily office properties in Southern California, Seattle and Chicago.
Blackstone’s European real estate fund, BREP Europe IV, has agreed to purchase the European equity real estate assets, for €1.9 billion. These consist of office, logistics and retail assets, largely in the UK, France and Spain. The logistics assets will be integrated into Blackstone’s European logistics platform, Logicor, and the retail assets into its European retail platform, Multi.
BREDS, Blackstone’s real estate debt fund, has agreed to purchase performing first mortgage loans in Mexico and Australia for $4.2 billion while BXMT, Blackstone’s publicly traded commercial mortgage REIT, has agreed to purchase a $4.6 billion portfolio of first mortgage loans primarily in the US with Wells Fargo providing the financing.
These transactions are subject to normal regulatory and other approvals and the initial closings will take place within the next six months.
Eastdil Secured/Wells Fargo Securities acted as advisor to Blackstone and Wells Fargo. Simpson Thacher & Bartlett LLP acted as legal counsel to Blackstone and Dechert LLP acted as legal counsel to Wells Fargo.
GE Capital was advised by Kimberlite Group and BofA Merrill Lynch and represented by Hogan Lovells.
For GE, the deal is part of its attempt to reduce the size of its financial business. The company said in a separate statement that it will offload bulk of its assets under GE Real Estate for $26.5 billion.
It did not name the buyer of the remaining assets but added that it has letters of intent to sell an additional $4 billion of commercial real estate assets to other buyers without identifying them.
Established in 1973 under its financial services arm, GE Capital Real Estate works as a lender and operator of commercial properties and currently has debt and equity operations across North America, Europe and Asia-Pacific. In Asia Pacific, it has operations in Australia, New Zealand and Japan.
It offers a range of capital and investment solutions, including fixed and floating rate mortgages for new acquisitions or re-capitalisations of commercial real estate worldwide. It also offers finances with loan structures, the acquisition, refinancing and renovation of office buildings, apartment buildings, retail facilities, hotels, warehouses and industrial properties.
According to its website, it has assets worth $34 billion spread across 4,400 properties.
For GE, the deal is a part of the move to go back to its industrial roots. The conglomerate has been under pressure to hive off its financial services assets for several years.
“For investors, we anticipate our high-value industrials to generate more than 90 per cent of our earnings by 2018. And, we expect to return more than $90 billion in cash to investors through dividends, share buybacks and the Synchrony exchange through the end of 2018,” GE said.
The industrial units made up just over half of GE's profit in 2013.
The deal is the biggest commercial real estate deal since Blackstone acquired Equity Office Properties Trust in 2007 for $39 billion.
Blackstone, one of the top owners of commercial realty in the world, has also emerged as the biggest investor in Indian commercial property marching past local developer DLF Ltd. In the last one year, it has sealed back-to-back deals in the commercial space. Recently, it acquired a 25-acre property named Oxygen Boulevard in NCR from developer The 3C Company for Rs 720 crore.
Sources indicate that it is in talks with the developer to acquire one more property in the NCR region for Rs 320 crore. Prior to that, it had acquired two IT parks in Noida and Pune from IDFC Alternatives for Rs 1,100 crore.
It is learnt that it is also in talks with North-based realtor DLF for a possible funding in one of its commercial assets and Milestone Capital to snap up 247 Park in Mumbai.
In India alone, it has over 30 million sq ft of commercial portfolio.
On the other hand, Wells Fargo had earlier shut its real estate investment unit in India. It had got an exposure to Indian property assets through its acquisition of Wachovia. In 2006, Wachovia had entered the Indian market and started investing across deals in the realty space led by Sandip Kundu, the managing director, Real Estate vertical in Asia for Wells Fargo.
In the aftermath of the financial meltdown in 2008 and Wells Fargo buying out Wachovia, the rechristened firm did not make many moves besides managing the existing assets.
(Edited by Joby Puthuparampil Johnson)
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