The recent $8 billion sale of IndCor Properties, an industrial REIT owned by the Blackstone Group, marks one of the largest portfolio purchases since the recession, but it comes as no surprise to capital markets experts, who say smart companies loaded up on lower-priced assets and then waited for an economic comeback.
The Blackstone Group announced on Dec. 1 that funds affiliated with its Blackstone Real Estate Partners VI and VII agreed to sell IndCor Properties to affiliates of GIC, Singapore’s sovereign wealth fund, for $8.1 billion. IndCor, based in Chicago, owns and operates properties in 24 U.S. states.
IndCor was formed only four years ago, but it quickly became the third largest industrial company in the country, with 117 million sq. ft. of space. The firm bought a 23-million-sq.ft. portfolio from Walton Street Capital in 2012. This year, the company acquired 16.6 million sq. ft. in two portfolios dispersed through Nevada, California, Illinois, Seattle, Colorado and Texas. Most recently, IndCor purchased a 1.1-million-sq.-ft. portfolio of industrial properties in El Paso, Texas.
Blackstone had announced in September that it would hold an IPO for IndCor, reportedly planning to raise about $1 billion. As a result of the recent sale, the IPO has been shelved. “We are excited about the company’s future prospects under new long-term ownership with GIC,” said Tim Beaudin, CEO of IndCor, in a statement.
Borja Sierra, head of capital markets with real estate services firm Savills Studley, says Blackstone did the right thing by creating the IndCor portfolio and offering it up to foreign buyers.
“They’re executing at a time when foreign capital for large deals in the United States is at a peak,” Sierra says. “We’re constantly receiving interest from Asian and European companies to deploy capital here. The learning curve has narrowed, and many of these firms are ripe to jump into the market.”
According to a recent report from property services provider DTZ, U.S. investment sales volume increased 8 percent to $66 billion in the third quarter, pushing the total for the year to $270 billion, a new record. Investors from outside North America stepped up acquisitions, with rolling annual volumes at a new post-crisis record of $23.5 billion, according to DTZ. Nigel Almond, head of capital markets research with the firm, said in a statement that the size, attractiveness and liquidity offered by key U.S. markets is very appealing to overseas investors, and it’s likely that property prices in the U.S. will increase.
“International capital continues to dominate, but we have continued to see interest from Asian investors, in particular from China, as well as growth from European sources, with German funds increasingly active alongside the Norwegian Government State Pension Fund,” he said.
According to Sierra, the industrial sector has been particularly popular, because of the ease of entry and the current tight market fundamentals. Overall vacancy for the U.S. industrial market is at 7.2 percent, helped by significant space absorption and historically low supply, as well as retailers’ appetite for new distribution facilities.
The IndCor deal is the largest in a number of industrial portfolio deals announced recently. Los Angeles-based Colony Financial Inc. announced last month that it will buy Cobalt Capital Partners, which owns 256 light industrial assets, for $1.6 billion. Investment manager RREEF America REIT II is selling off its 7.8-million-sq. ft. portfolio to funds managed by Greenfield Partners for a reported $400 million.
Sierra says there’s tremendous global demand for U.S. real estate portfolios because of the dip in oil and gas commodities. “In the past quarter, we’ve handled three foreign deals, and if we had had three more, we would have closed three more.”