Multi Megabets & LVMH's RE Weaponry

KKR's $2B flex, Barnett's most audacious deal, plus: Arnault

Author

Hiten Samtani
June 26, 2024

Fund Times in Multifamily

Brookfield, Blackstone and KKR have all made mega multi buys in the last 90 days

During the 5th inning of Game 3 of the ‘32 World Series, Babe Ruth, who had been getting ripped apart by Cubs fans, stepped up to the plate. With the count at 2 balls and 2 strikes, the Bambino pointed 2 fingers toward center field. He then thwacked the next pitch deep into the center field seats. The incident, part of baseball lore, came to be known as the “called shot.” ⚾️ 

I’m not sure if RE fund bosses are baseball nuts, but they’re all about called shots nowadays. First there was Blackstone, backing up its “reacceleration” rhetoric w/ its biggest-ever multifamily deal, the $10B acquisition of AIR Communities. And now it’s KKR’s turn: after Ralph Rosenberg evangelized MF in an April report titled “When Fear is a Friend,” it has followed up with its own record deal.

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KKR(cont.)

KKR bought a 5,200-unit portfolio from Lennar for $2.1B ($400K-ish/door), in a deal that closed Tuesday, per WSJ. The apartments – well-located, upscale, new-ish – represent just under half of the 11K unit Quarterra portfolio that Lennar has been shopping since December – the homebuilding giant was teasing a $4.5B price tag ($400K-ish/door) for the whole thing, so they’ve got to be chuffed with how the deal went.

The interest in Quarterra was so strong, sources told The Promote, that the listing broker JLL was able to win another assignment, a 2,100-unit portfolio owned by Greystar that’s concentrated in the Sunbelt. (There’s another huge portfolio in play, a few thousand new-build units owned by the Davis Cos., but I’m not sure how far along that one is.)

Rents have already start to rise (albeit modestly) across the Northeast and Midwest. Cap rates are starting to come down for well-placed multi assets, going by CBRE’s latest MF underwriting survey.

Source: CBRE

"Scaled players will see opportunities first and have the freedom to deploy without much leverage, an essential component to success in this environment," Rosenberg said in KKR’s April report. That’s certainly bearing out: across just 3 transactions, Blackstone (AIR), Brookfield (7K units for $1.6B) and now KKR have dropped nearly $14B on multifamily in less than 90 days. The players in the tier below them are feeling the FOMO and starting to get busy too. 🤩   

(Bonus: Check out our snapshot of KKR’s Rosenberg, partial to megadeals and playing hardball from mid-air ✈️ )

LVMH’s Real Estate Artillery

LVMH’s PE arm uses real estate to rough up rivals

Bernard Arnault, overlord of LVMH and undisputed czar of luxury, has made real estate a key part of his playbook to pulverize rivals. Fueled by cheap corporate debt, LVMH dropped $2.7B on RE acquisitions last year, and a new Bloomberg deep dive on Arnault reveals how such deals, many done through LVMH’s PE arm L Catterton, shake up the landscape.

Among LVMH’s projects: A yearslong bet (w/ developer Craig Robins) on the Miami Design District, and the transformation of a Montreal industrial district into a $5.1B upscale retail and F&B destination. LVMH’s competitors have tried to keep up – both Prada 👠 and Gucci parent Kering 👛 went hard on Fifth Ave. recently, much to Jeff Sutton’s delight – but it’s a game where being the biggest helps. Here’s Bloomberg

For rivals, all this creates an intolerable imbalance of power. They are either at the whim of property owners desperate to score a Dior or Vuitton store—or LVMH itself is their landlord. Either way, they’re likely to get bumped from the best locations. One rival luxury brand CEO, who asked not to be identified because he works with LVMH in multiple ways, was apoplectic. “Luxury is a disaster. There is no competition. It’s not a game for everyone, it’s just them,” this person says. “Everywhere you go, they try to kick you out.”

Arnault takes a decidedly let-them-eat-cake approach to such protests. “We have good and efficient competitors, and you see the result, and we have competitors that are not as good,” he said. “Usually, the ones who complain are the ones who are not the best. They need excuses.” 🍰 

Barnett: Powder to the People

Gary Barnett’s spectacular Utah machinations have come to fruition

Sometimes the side quest can be even more fascinating than the main quest. Gary Barnett, father of Billionaires’ Row, master of Manhattan assemblage, the man who made the Ring bling, has pulled off something in Utah ski country that should be studied by coming generations of aspiring dealmakers. ⛷️ 

Deer Valley Resort Company, the operator of the famed ski resort, struck a deal with Barnett last summer to operate 3,700 acres he controls on the eastern flank, creating a combined 5,700+ acre powder haven that Ikon Pass holders can enjoy. We’ve just learned, c/o the Park Record, that the agreement runs 100+Y, so it’s a good time to take stock of just what Barnett made happen here. I’ll point you to this ten31 deep dive for the whole tale, but here’s what it took: A giant stealth assemblage, quasi public-private JVs (MIDA 🪖 ), creative capital stacks (revenue bonds), purchased political clout, media manipulation (the chutzpah here is scarcely believable), threats of allowing snowboarding 🏂️, and a potentially massive payday. Just 🐐 things.

This sponcon article is amazing 👏 

Quickies

Unquotable Quotes

“In today’s environment, to be really competitive and accretive as a capital markets adviser, you need to have the whole playing field.”
- Cushman’s Chuck Kohaut, giving a masterclass in brokerbabble