Blackstone Makes $10 Billion Bet on Multifamily

Explaining how and why they “took a REIT private” and what this means for the market

From the April 8th WSJ article: Blackstone Making $10 Billion Multifamily Purchase, Going on the Real Estate Offensive

Each week, we break down a major real estate news story, explaining what it means and why it matters. Great for people who want to better understand the real estate industry.

Blackstone is “taking private”—or acquiring all the shares of—AIR Communities, a public REIT who owns 76 apartment buildings in prime markets like Miami, LA and Boston, for $10bn.

This transaction is a positive signal that prices for commercial real estate could be bottoming and the time is ripe to start investing again. 

Let’s break it down.

What is a REIT?

If you’re a real estate investment firm, like AIR Communities, you need capital to acquire properties.  

You can choose to get this money from private investors (like high-net-worth people or pension funds) or by forming a public REIT and selling shares to the public on a stock exchange. 

AIR, as a publicly-traded REIT, raises money for projects by issuing shares on the New York Stock Exchange (NYSE), allowing individuals and institutional investors to buy into the company and share in its income through dividends, which are funded by the profits from its real estate operations.

This gives AIR access to a broad pool of capital. But as a REIT, AIR must follow strict SEC guidelines for public reporting –and distribute 90% of income to investors annually – which is why many firms choose to raise money from private investors instead.

Why would Blackstone “take a REIT private”?

First, Blackstone must believe that AIR’s stock is worth more than where it’s trading in the public markets, i.e., that the market has gotten too negative.

So their strategy is to buy all the public shares at the current price (which they think is a discount), then operate the portfolio privately, putting in $400 million of their own money to improve the buildings via renovations, marketing, etc. 

As a private company, AIR/Blackstone no longer has to follow the same strict public reporting requirements or face the pressure of quarterly earnings reports. This can give the company more freedom to make long-term decisions that might take a while to pay off. 

What does this mean for the struggling commercial real estate industry?

Blackstone’s acquisition of AIR is positive as it signals that major investors (like Blackstone) are seeing potential for recovery and are ready to invest heavily again, especially in segments like multifamily housing which have shown resilience. 

It also suggests a belief that the market may be reaching its lowest point, making it a strategic time to buy. This could inspire confidence in other investors, potentially stabilizing and even boosting the multifamily market despite ongoing challenges like high interest rates and economic uncertainties.

But while this is a strong signal for the multifamily market, it is not necessarily related to other asset classes in commercial real estate like office, where demand in general is still largely uncertain.

—Paul Stanton