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Blackstone invested more in European real estate than any other region in 2023, as the world’s largest commercial real estate owner picked up bargains from market turmoil and distressed sellers.
Real estate transactions collapsed this year as a sharp rise in interest rates strained a sector that relied heavily on low-yield bonds. Trading volumes halved in the third quarter, according to MSCI data.
Blackstone has reduced its total spending on new real estate investments from approximately $47 billion in 2022 to approximately $9 billion in the first three quarters of 2023. But unusually, the company allocated more than 55 percent of its global investments to European assets, including the UK. . The group typically invests mostly in the United States, with typically 20 to 30 percent allocated to European real estate.
The change suggests buying opportunities are emerging early in Europe as real estate investors weather the economic downturn caused by rising interest rates.
Highly indebted executives, including public companies and private investors, are under increasing pressure to sell assets to pay down debt, and some are facing debt maturities.
Kathleen McCarthy, Blackstone’s global co-head of real estate, said: “In Europe, our sector selection intersects with difficulty and disruption, which is why we have been more aggressive in Europe than elsewhere this year. “I am explaining why it became a target.”
McCarthy said the company has $40 billion in “dry powder” (money raised but not yet invested) and has “the strongest cash flow growth and good demand-supply fundamentals” such as distribution warehouses. The company said it is targeting investments in parts of the real estate market with The “living” division includes data centers and apartments and student accommodation.
Many European property owners took on very cheap debt in recent years when interest rates were low or negative in parts of the continent. Of the 640 billion euros in European private real estate bonds issued between 2019 and 2022, more than a quarter, 176 billion euros, will be released in 2024 due to falling real estate values, tighter lending conditions and higher debt costs. There is a possibility that it will not be possible to refinance even if the repayment deadline arrives between 2027 and 2027. According to real estate advisor CBRE.
Rising debt costs have already hit real estate valuations hard this year, leaving many companies struggling to service their debt and creating an opportunity for deep-pocketed investors.
Fergus Hicks, real estate strategist at UBS Asset Management, said price corrections in Europe and the UK were accelerating. “We expect the UK market to bottom first, followed by the rest of Europe, but given the slow response from US valuations, we expect it to be the last to bottom,” he said.
The real estate crisis is causing headaches for some of Blackstone’s businesses. It had to limit redemptions by investors from its flagship Blackstone Real Estate Income Trust. But elsewhere, the group has made more than 100 deals in Europe so far this year, acquiring properties from funds amid liquidity pressures.
In a European deal valued at around €5bn, Blackstone reached a £700m agreement in April to take Industrials REIT private and acquire the UK-listed property company’s 7m sq ft of industrial and warehouse space. Obtained a portfolio of ft. Many publicly traded real estate companies have been trading at deep discounts to their net asset values this year, making it harder for them to raise equity capital and increasing the likelihood of them being taken over.
Blackstone has signed a deal to buy another logistics facility from Swedish landlord Korem for 490 million euros. Like many Nordic real estate groups, Korem is aiming to pay down its debt.
In November, British housebuilder Vistry announced an £819 million deal with two Blackstone-backed residential landlords to sell 2,915 private, affordable rental and shared ownership properties. Vistry is changing its strategy to focus less on private home sales as the UK housing market stalls.