Blackstone's $10B Multi Bet, Veritas Stoic Post $1B Loss & a Boston Office Tea Party

Blackstone Makes $10B Multi Bet

Jon Gray did warn you this was coming.

“2024 is going to be a year of reacceleration,” Blackstone’s golden boy said in February, and he’s walking the walk. The firm is acquiring multifamily REIT AIR Communities in a $10B deal – that’s two Stuy Towns – giving it control of 76 upscale rental communities across the U.S, WSJ reports.

The all-cash deal ($39 a share, 5.9% cap rate on ‘24 earnings, assuming $3B+ in debt) will be made through its record $30.4B BREX fund. “While you’re in this period bouncing along the bottom (referring to RE values), this is when we want to deploy capital,” Gray said in February, “when you can see that light at the end of the tunnel but it’s not yet priced into the market.”

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Blackstone AIR (cont.)

Blackstone says it will pump another $400M into capex. AIR, run by Terry Considine, spun off from his Aimco in late 2020. The company went on an acquisition tear in South Florida in ‘22, paying nearly $500M for two towers in Miami Beach and Fort Lauderdale. It also owns the Palazzo tower in L.A.’s mammoth Park La Brea, and the influencer hub Broadcast Center (right by Erewhon). It tends to play in the upscale renter space: the average median income of its tenant base is $237K, and the average rent is $2,900+, per a February investor presentation. Sounds like a deal fraught with far fewer political minefields for Blackstone 💣️ than Stuy Town (rent-stabilized? Manhattan? Fuhgeddaboudit)

The AIR deal comes a few months after Blackstone bought Tricon in a $3.5B take-private, giving it control of 38K single-family rentals. And if multifamily is a sector Blackstone is once again aggressive in, who do they turn to next, and who turns to them? With a lot of the multi syndicators staring down mass delinquencies, does Blackstone become the call? They’ve amassed big enough portfolios that it might be worth a shout.

Amor Fati

The central character in San Francisco’s 🌉 biggest apartment telenovela 📺️ is plotting his comeback. Yat-Pang Au, the founder of Veritas Investments, which defaulted on nearly $1B in debt tied to 2K+ units last year and then lost the mammoth portfolio to Brookfield, is stoic about the whole matter. “It was a question of debt and debt costs and then value degradation,” he told TRD. “I got them in the same way that I lost them,” he added, referring to his ‘11 acquisition of the distressed Lembi family portfolio that catapulted him into the ranks of the city’s largest landlords. Au said he’ll look to gain back some market share in SF while expanding into other markets on the West Coast (Seattle, L.A.). His target, once again, will be distressed opportunities.

If you’re new to the whole Veritas/Ballast/Brookfield saga, I strongly suggest you catch up here – pretty spicy 🌶️ . It brought up so many elements that make apartment investing such a high-wire act: big-money backers, tenant lawsuits, floating-rate debt, a default, a foreclosure auction, even a $164M special servicer holdback. 

In the interview, Au recalled some of the heat he got from SF tenant activists, who he said zeroed in on him as a villain 👿 to advance their agenda of “socializing housing.”

“At least we’re not the largest anymore,” he joked.

Quickies

• A really good read on one of the little-discussed legacies of the Bloomberg administration - the downzoning of certain prime neighborhoods that resulted in less housing built. (Carroll Gardens, Brooklyn a great e.g.- new permitted units dropped from 743 in the decade pre-rezoning (‘09) to just 164 the decade after — a 78% decline.)

• Suns owner 🏀 and mortgage tycoon Mat Ishbia of UWM alleges that arch rival Dan Gilbert (Cavs owner) orchestrated a damning report into UWM’s business practices. “That’s Rocket Mortgage and Dan Gilbert doing Rocket Mortgage and Dan Gilbert things.”

• Pair of prominent NYC debt dealmakers – Adam Hakim and James Murad – leave Meridian for Ripco. (Among flurry of Meridian exits.)

• There it is: The Saudis 🇸🇦 are scaling back the $1.5T plan for Neom, the megalopolis in the desert. Was slated to house 1.5M residents by ‘30 - now adjusted to <300K. Consultants made a killing tho

• Billionaire developer and former Spurs ⚽️ owner Joe Lewis avoids slammer time in U.S. insider trading case. “I broke the law. I’m ashamed, sorry and hold myself accountable.”

• Takeover of CA Ventures’ industrial arm hampered by infighting between Chicago firm’s former execs

Office Doom Loop’s Loopy Solution

"Don't overcook the steak. You overcook it, it's no good. It defeats its own purpose." - Jake LaMotta, Raging Bull 

Boston’s office market has taken a shellacking, and this in turn has put a strain on the city’s coffers, which get more than a third of their tax revenue from commercial properties. The mayor’s solution? Jack up the CRE tax rate 👏 👏 

Mayor Michelle Wu submitted a petition to temporarily hike the city’s tax-rate ceiling on commercial properties (currently 2.5%) relative to resi (currently 1.1%) ones, per Bloomberg. The intention is to shield homeowners from the CRE fallout by redistributing the tax burden. But what the policy seems to be missing is that raising taxes on a sector in crisis is likely to sink it further into crisis. We saw this play out in L.A., with Measure ULA (the misleadingly billed “mansion tax”) hurting deal volume.

(I was once teaching my cousin how to ride a Vespa 🛵 . We were approaching a wall, I asked her to slow down, she panicked and jammed on the gas instead of the brake. We went right into it. This is like that.)

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