Blackstone’s Online-Shopping Play: 800 Million Square Feet of Warehouses - Jean Pierre Bansard Commercial Real Estate Development Firm.
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Blackstone’s Online-Shopping Play: 800 Million Square Feet of Warehouses

Blackstone’s Online-Shopping Play: 800 Million Square Feet of Warehouses


Blackstone Group Inc.

is betting that the rise of online shopping will remain a bright spot in the face of slowing global economic growth. But it isn’t buying retailers. It’s buying warehouses.

The private-equity giant’s real-estate funds have done some of the year’s biggest buyouts, announcing an $18.7 billion purchase of warehouses from Singapore-based GLP in June and signing a deal in September to buy a portfolio of warehouses from

Colony Capital Inc.

for $5.9 billion. Both price tags included debt.

Blackstone, one of the world’s largest real-estate investors with $157 billion of investor capital, has a similar strategy in Europe. Last month, it announced the formation of a logistics company called Mileway, comprised of around 1,000 warehouses totaling roughly 30 million square feet. The firm also has warehouse holdings in Australia, Canada and China.

Shopping online has become a part of everyday life for many, as bricks-and-mortar stores close their doors and consumers opt for the convenience and selection of the internet. Blackstone thinks there is even more opportunity in the sector than meets the eye.

All told, Blackstone owns about 800 million square feet of industrial warehouses, with nearly half of its 443 million square feet in the Americas having been acquired this year. The majority is concentrated in fast-growing markets close to densely populated urban areas like Dallas, Atlanta, Los Angeles, Miami and San Francisco, where tenants promising speedy delivery to their customers increasingly want to be located.

This past week,

Amazon.com Inc.

said shipping costs jumped 46% year over year in the third quarter as it shifts warehouses and moves inventory closer to customers of its one-day shipping program.

Blackstone bought this warehouse in Jersey City, N.J., earlier this year as part of a portfolio it acquired from GLP.


Photo:

CoStar

Given the huge growth of Amazon and other online outlets, it seems logical that a bet on the continuing shift to e-commerce would be crowded. But the strength of Blackstone’s belief that the supply of urban warehouses will remain tight as demand continues to explode—a recipe for higher rents—has led it to outbid the few other large-scale competitors vying for the assets.

“This isn’t a contrarian thesis,” said

Ken Caplan,

Blackstone’s co-head of real estate, in an interview. “We think there’s been such a fundamental shift that people just don’t recognize it has happened yet. They are still adjusting their views.”

Growth in gross domestic product and leasing used to be tightly correlated, but leasing is now significantly stronger than might be expected given GDP growth, Mr. Caplan said.

Blackstone’s funds don’t report performance metrics. But logistics real-estate firm

Prologis Inc.

said earlier this month that rent increases for existing tenants hit an all-time high of 37% in the third quarter.

Blackstone’s tenants include some traditional distribution and storage companies, plus a growing number of third-party logistics operators that contract with retailers to handle distribution and fulfillment. More than half of tenants’ costs come from transportation, and only about 4% to 5% comes from rent, Mr. Caplan said.

That makes them more willing to stomach higher rents as long as it means minimizing the distance between the warehouse and their customers. Warehouses also require much lower capital expenditures than office buildings or retail space.

Blackstone’s Mr. Caplan gave a presentation about logistics that included a photo of his then 8-year-old son standing next to Amazon and Zappos.com boxes.


Photo:

GABBY JONES for The Wall Street Journal

This isn’t the first time Blackstone has been bullish on warehouses. It began snapping them up after the financial crisis when vacancies spiked and construction halted. Between 2010 and 2014, it bought 117 million square feet of U.S. warehouses, and saw rents rise 31%.

It assembled these into IndCor Properties Inc., which it sold in 2015 to a group including investment manager GLP and Singapore sovereign-wealth fund GIC Pte. Ltd. for $8.1 billion. About half of the assets it bought from GLP this year were among those it previously owned.

Blackstone replicated the strategy in Europe, forming Logicor Europe Ltd., which it sold in 2017 to sovereign-wealth fund China Investment Corp. for about $14 billion.

These days, retailers are leasing smaller spaces inside cities where it is harder to build because of land availability and local zoning laws. That dynamic has brought the vacancy rate for U.S. industrial and logistics properties to near-historic lows—4.4% in the third quarter, compared with 12.1% for offices, according to real-estate firm

CBRE Group Inc.

Mr. Caplan knows from personal experience how dominant online shopping has become.

Two years ago, he presented to Blackstone investors about the firm’s logistics strategy. He tucked in a slide with a photo of his then 8-year-old son standing next to a pile of boxes from Amazon and Zappos.com that stood taller than he did.

“The significance of e-commerce is easy to see today,” the slide read. But it was the picture that hit home.

“I did this great presentation, and the only thing anyone wanted to talk about was that photo,” Mr. Caplan said.

Write to Miriam Gottfried at [email protected]

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