Why Blackstone Is About to Pocket Almost $14 Billion From a Sweet European Deal

6/22/17

By Eric Volkman, MotleyFool

In the latest in an ever-lengthening series of big-ticket deals, funds affiliated with Blackstone Group (NYSE:BX) agreed to a monster European sale. The big private-equity player's busy real estate unit is unloading Logicor, a logistics company it controls, to China Investment Corporation for a cool 12.25 billion euros ($13.75 billion). The deal is expected to close by the end of this year.

This, incidentally, will be the biggest private-equity real estate transaction in European history. It almost certainly won't be the last pricey deal for Blackstone on the continent. Here's why.

Delivering a big deal

Logicor is a homemade Blackstone creation. The real estate division established it in 2012 as essentially a repository for its growing collection of European warehouse assets. Blackstone kept bulking up that portfolio, to the point where Logicor now comprises 630 properties, covering 13.6 million square meters (146 million square feet) across 17 countries on the continent.

The exterior of a Logicor building.

IMAGE SOURCE: LOGICOR

If that sounds familiar, it's probably because Blackstone did much the same thing with a set of U.S. warehouse assets. In 2010, it started bundling these up into a company called IndCor, which was ultimately sold for just over $8 billion to GIC, Singapore's sovereign-wealth fund, in 2014.

Historically, warehouses haven't been a particularly hot or interesting segment of the real estate market. But the rise of e-commerce over the past few years has cranked up interest in these facilities -- after all, Amazon.com and its contemporaries need plenty of warehouse coverage to get their goods to consumers in a reasonable window of time.

Previously, goods were distributed through hub distribution centers placed in strategic locations. But these days, consumers around the world are increasingly expecting Amazon levels of speed and efficiency. Companies that can't get a package to a front door within a few days risk losing business to faster rivals. Europe is no exception to this trend.

New opportunities in the "old" continent

Investors like CIC, which has been gobbling up real estate around the globe over the past few years, realize how critical logistics are to modern commerce. It's no wonder that in the European industrial real estate market last year, investment into distribution and logistics facilities saw the best growth by far, rising by nearly 8% compared with the 2015 level, according to commercial real estate consulting firm Real Capital Analytics.

That well outpaced the incremental growth in "other industrial" category and was in sharp contrast to the steep 28% year-over-year decline the stumbling retail segment recorded.

Although Blackstone is mum on how much profit it made on the Logicor sale, we can extrapolate from the preceding numbers -- from only a single year -- that the unit's constituent properties increased nicely in value.

Another indication that the Logicor deal was a winner is that Blackstone is pushing even deeper into European real estate. Days after the sale was announced, the company said it closed the financing on a new real estate fund focused solely on the continent. And it's a doozy -- at 7.8 billion euros ($8.7 billion) in capital commitments, Blackstone says it's "the largest ever dedicated European real estate fund."

Going forward, we can expect the company to stay busy for years on the continent, scouring its many corners for properties it can potentially package for sale. Sooner or later, the chances are fairly good that it'll announce another divestment with a meaty price tag before long.

Blackstone has been doing very well of late, and its ever-expanding real estate portfolio is contributing to its impressive growth. Investors should be cheered by the Logicor deal, while looking forward to the company's continuing efforts in Europe. 

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