Blackstone’s Purchase of Equity One Portfolio Signals Confidence in Retail Assets

The Blackstone Group L.P.’s acquisition of 36 shopping centers from Equity One Inc. should spell good news for retail property owners.

The deal means that Blackstone, a private equity firm that has developed a stellar reputation for savvy investment plays, believes that valuations in the retail sector are destined to rise, according to David J. Lynn, managing director with Clarion Partners.

On Sept. 26, Equity One Inc., a North Miami Beach, Fla.-based REIT, announced that it entered an agreement to sell 36 shopping centers in Southeastern U.S. to Blackstone Real Estate Partners VII for $473.1 million. The centers total approximately 3.9 million square feet of space and are located in Georgia, Florida, North Carolina, South Carolina, Alabama, Tennessee and Maryland. As of June 30, the portfolio had an occupancy rate of 91 percent and generated net operating income of approximately $35.4 million for the 12 months prior.

Blackstone created Blackstone Real Estate Partners VII earlier this year with the goal of investing up to $10 billion in distressed and undermanaged assets, assets with broken capital structures and other properties likely to be sold at a discount.

Given that the Equity portfolio attracted multiple bidders, the $473 million price tag likely reflects the current market value of the centers, according to Jim Sullivan, managing director of REIT research with Green Street Advisors, a Newport Beach, Calif.-based consulting and advisory firm. The hitch is that given current economic uncertainty, market value is a very amorphous term.

“These are people who know real estate cycles and valuations very well,” Lynn says of Blackstone. “And I think that retail is still in recovery, so they are kind of buying at the right part of the cycle. Part of [the attraction] is that these are more necessity-based retail formats in markets that in general are doing better than the rest of U.S. But we are also at the beginning of another growth spurt in retail and if you are going to buy, you want to buy at a discount, so it’s probably a good period to do that.”

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