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Blackstone has intensified its bet that demand for warehouse space will persist, with a €21bn recapitalisation of its European logistics business in one of the largest-ever private real estate deals.
The transaction involves a group of new investors buying into the Amsterdam-based platform, named Mileway, while other investors are selling out.
“We were evaluating what the best exit could be in late 2021 — the options included an IPO or a private sale,” said James Seppala, head of real estate in Europe for Blackstone.
Instead, the private equity firm has opted to hold on to the business, although it has announced a 75-day “go-shop” period in case a higher outside bidder emerges.
Rents and valuations for warehouses have spiralled over the past year thanks to record demand for new space, driven by a boom in ecommerce.
“It became clear to us that a lot of our larger investors wanted to maintain exposure to logistics because gaining it now is not easy, specifically for last-mile logistics. Apart from [FTSE 100 warehouse owner] Segro, few public companies have that exposure. So a recapitalisation was suggested as the best alternative for the investors,” said Seppala.
Existing investors will supply about three-quarters of the capital for the deal and several investors, including Asian sovereign wealth funds and US pension funds, have increased their commitments to €500mn or more, according to Seppala.
The pandemic has forced shoppers online and disrupted supply chains, encouraging product suppliers to bulk up their warehouse space in order to keep stock in reserve.
That helped push up the value of distribution centres 35 per cent last year, according to MSCI, and has made warehouses a central plank of many real estate investors’ strategies for the first time.
Blackstone, which announced the transaction on Tuesday, has been building a portfolio of warehouses across Europe since 2016 and now owns more than 1,700 properties, mostly last-mile delivery sites close to urban centres, through its Mileway brand.
When Mileway was launched in 2019, its portfolio was valued at €8bn. That figure has almost trebled since with the company embarking on a spree of acquisitions and benefiting from a sharp rise in the value of warehouses.
The US investor’s decision to hold on to Mileway indicates the company’s conviction that rents across Europe will continue to increase.
The deal is a sign of how much the logistics sector has matured over the past six years. Blackstone had originally targeted warehouses via its opportunistic funds, but is now viewing the sector as a stable, core investment.
“Thinking about the business going forward, we still think it’s a very attractive sector; we’re far from calling the top, but we think Mileway specifically is going to generate more stable returns going forward,” said Seppala.
The company will continue to invest, but will focus on growing its footprint on sites already in the portfolio rather than buying up portfolios or rival operators as it has done to date.
“It’s a major vote of confidence in the sector. It’s the largest-ever transaction not just in logistics but in wider European real estate, and it shows the depth of liquidity,” said Colm Lauder, an analyst at Goodbody.
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