Blackstone Sells Student Housing Portfolio to KKR for $1.64 Billion
Blackstone Real Estate Income Trust (BREIT) is offloading its collection of 19 student-housing properties to KKR for a whopping $1.64 billion.
Jordan B. & Han-Gwon Lung
April 26, 2024
Together with
Good morning. BREIT is offloading its collection of 19 student-housing properties to KKR for $1.64 billion. Meanwhile, a DoubleLine portfolio manager says it’s time to ‘sharpen your pencil’ as CRE conditions improve.
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Market Snapshot
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*Data as of 4/25/2024 market close.
Housing Demand
Blackstone Sells Major Student Housing Portfolio to KKR for $1.64 Billion
Blackstone Real Estate Income Trust (BREIT) is offloading its collection of 19 student-housing properties to KKR for a whopping $1.64 billion. The portfolio includes over 10,000 beds linked to 14 public universities across 10 states.
Some background: Blackstone has been an active player in the student housing market, notably with its acquisition of American Campus Communities in 2022 for $13 billion. Despite the sale, Blackstone remains bullish on this sector, planning to open six new communities through American Campus Communities (ACC) within the year. The properties sold to KKR were initially acquired by BREIT in 2018 in partnership with Greystar Real Estate Partners.
Zoom in: The student housing sector is on fire. Yardi's National Student Housing Report shows March 2024 pre-leasing at 67.7%, significantly above past years and a 10% increase from the 2019-2022 average, driven by growing enrollment. Average rent per bed climbed to $895, marking a 6% year-over-year increase. Despite earlier slowdowns, rent growth accelerated in March, with student housing averaging a 6.2% rise during the leasing season, ranking it among the top-performing commercial real estate sectors.
Student housing pre-leasing is surpassing previous records, with continued strong rent growth in March, reports Yardi Matrix.
So why sell? This deal comes amidst continued asset sales by Blackstone, including a $1 billion sale of California warehouses and parts of a commercial property loan portfolio. Since early 2022, BREIT has disposed of $20B in real estate assets, often at a premium to net asset value. This flurry of activity comes as the fund faces hurdles in attracting new capital. March's fundraising totaled only $228 million, a sharp decline from the monthly $2 to $3 billion in early 2022, after a year of insufficient cash flow to cover its dividend.
➥ THE TAKEAWAY
Looking ahead: Post-acquisition, KKR will hand over the portfolio’s management to University Partners, a specialized entity formed in 2016 to oversee student housing operations. With this new addition, University Partners will oversee more than 25,000 beds. This acquisition allows KKR to broaden its reach into emerging niche markets, leveraging its existing operational expertise.
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✍️ Editor’s Picks
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Better than expected: U.S. GDP rose by 2.5% in 2023 and is expected to grow another 2.4% this year. There are also 5.8M more jobs now than pre-COVID.
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Southern Hospitality: Southern Ventures presents two hospitality investment opportunities through an acquisition of the Hampton Inn & Suites and the Fairfield Inn & Suites in Southport, North Carolina. (sponsored)
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Regional realities: Amid higher interest rates, regional banks saw profit drops in Q1 and are facing revenue challenges from being forced to adopt more simplistic banking models.
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Marketing magic: CoStar Group (CSGP) reported record site traffic and revenues for several of their residential networks, including Homes.com, with 156M unique visitors in March.
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Chicago touchdown: The Chicago Bears have unveiled renderings for a $4.7 billion domed lakefront stadium, with proposals indicating $2 billion in public funding and a target completion date of 2028.
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Insurance insolvency: Seven property insurers in Florida went bankrupt in 2021–2022, with thousands struggling to find new coverage and forced to swallow higher costs.
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Staffing strain: A new rule requires nursing homes to provide 3.48 hours of care per resident per day (with 0.55 hours from a registered nurse), impacting current profit margins.
🏘️ MULTIFAMILY
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De-zoned: The Plano City Council bans new short-term rentals in single-family neighborhoods, so Airbnb (ABNB) is now only allowed in hotel-zoned areas.
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Missing middle: In San Francisco, 84% of apartments for households earning $130–$195K annually are empty, due to limited market options and lots of red tape.
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Southern charm: One Real Estate Investment secures $52M for The ONE at Columbia, a 360-unit multifamily project in South Carolina.
🏭 Industrial
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Taxing times ahead: Dallas industrial property owners are reeling from 53–70% value spikes, prompting fierce protests and concerns for struggling tenants.
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Changing hands: Pagewood purchased the 102.6KSF Georgibelle Business Park in Houston from Buffalo Real Estate for around $9M.
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Data dominion: AWS (AMZN) plans an $11B data center in New Carlisle, IN, creating 1K jobs as Indiana offers up to $98.3M in incentives.
🏬 RETAIL
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Discount delight: Regal Ventures bought Belden Centre in Chicago’s Lincoln Park for $11.2M, 37% less than the previous selling price.
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Retail realities: Retail real estate expert Mike Sladich notes surprising trends this year, like minimal distress, rising rents, low vacancies, and more flexible lenders.
🏢 OFFICE
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Lagging behind: The U.S. office market continues to struggle post-pandemic with just $5.4B in sales in 1Q24 at $171SPF, down 17% YoY from $6.5B.
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Tower transformation: Brooklyn developer Bushburg will buy the Rudin family's 1.2MSF 1960s office tower at 80 Pine St for $160M, with a possible resi conversion in the works.
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Keeping the name: The NBC Tower lease was extended to 2040, reducing space by over 50% while retaining naming rights in order to address remote work challenges.
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Music City on my mind: California investor Menlo Equities purchased the 13-story Truist Plaza in Nashville for $84.5M, at $248PSF.
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No thank you, actually: Consus Asset Management pulls out of a $145M deal for the half-empty 777 Tower in Downtown LA, adding to the city’s office market woes.
OPTIMISTIC OUTLOOK
Active Managers Key to Navigating Revitalized CRE Market
An office building in the Financial District of San Francisco, California.Photographer: Loren Elliott/Bloomberg
According to DoubleLine Capital, the commercial real estate market is showing signs of recovery, with tightening spreads and improved credit access.
Recovery loading: Following a turbulent period triggered by the collapse of Silicon Valley Bank and rising rates, the commercial real estate (CRE) market is witnessing a significant turnaround. Morris Chen, a portfolio manager at DoubleLine Capital, highlighted that the market's initial pessimism is priced in, making way for a more optimistic investment climate.
Zoom in: The CMBS market has seen gradual improvements, with spreads tightening significantly—evidenced by a 260 basis point reduction in BBB-rated bonds. This tightening reflects a broader trend of increased liquidity and credit availability, with non-agency CMBS issuance soaring to $23.5 billion, up 160% from last year, according to Bloomberg.
Better returns: The market seems to have moved away from extreme bearish scenarios. For example, DoubleLine's actively managed DCRE ETF, with $130M in AUM, has outperformed its 3% benchmark with returns above 7% since its launch last April. By maintaining a consistent focus on short-duration securities with high probability payoffs, DCRE has thumped the competition. “Inside of the two-year part of the curve is very interesting. It’s an area where if you want to play offense, you can play offense,” said DoubleLine portfolio manager Morris Chen.
➥ THE TAKEAWAY
Seizing opportunities: These conditions are fostering a fertile environment for active managers like those at DoubleLine, who are encouraged to "sharpen their pencils" and seek out undervalued investments. DoubleLine portfolio manager Morris Chen says, “The shift is the markets getting smarter or more efficient, and people are more willing to roll up their sleeves and dig into this. That’s also a very healthy sign. It’s very akin to a stock pickers’ market.”
📈 CHART OF THE DAY
We all knew that Walmart (WMT) dominated the grocery sector in many states, but seeing the breakdown is something else. In Northwest Arkansas, for instance, the mega mart owns over 78% of the grocery market.
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