The Blackstone Group has agreed to acquire Trizec Properties, one of the largest owners of office properties in the US, for $8.9 billion (€69 billion) in what would be the New York-based private equity firm’s eighth acquisition of a publicly traded real estate company in the past two years.
In the Trizec deal, Blackstone has partnered with Brookfield Properties, a commercial real estate investment trust (REIT) headquartered in Chicago, though the two parties will be responsible for different assets. Brookfield will manage and operate properties in New York, Washington DC, Los Angeles and Houston, which comprise approximately half of Trizec’s 40 million square foot portfolio. Blackstone, which will oversee 5.4 million square feet of properties in West Los Angeles, San Diego and New York City, also has the opportunity to acquire additional assets totaling 12 million square feet prior to closing.
Under the terms of the deal, Blackstone and Brookfield will acquire the shares of Trizec Properties for $29.01 per share, as well as the shares of Canadian subsidiary Trizec Canada for $30.97 per share. The $8.9 billion deal, which includes approximately $4.1 billion in assumed debt, is the second largest takeover of a real estate investment trust according to Bloomberg. Brookfield and other institutional investors will contribute $1.3 billion of equity to the deal; Blackstone’s equity commitment was not disclosed.
Though other private investors such as Morgan Stanley and Onex have been eyeing public real estate companies in recent months, driven by a growing economy and a belief that the public markets are not fully valuing property-intensive companies, Blackstone has clearly been the most active. The private equity firm has concentrated primarily on the hospitality sector, acquiring MeriStar Hospitality, La Quinta and Wyndham International in separate, multi-billion dollars transactions over the past two years. Earlier this year, the firm took office REIT Carr America private in a $5.6 billion deal.
Despite all this activity, however, the Trizec acquisition comes at a time when many industry participants, Blackstone included, are questioning how much of a public to private arbitrage remains. At a conference in New York earlier this year, Jonathan Gray, senior managing director of Blackstone and co-head of its real estate group, noted: “I think the REIT market and lodging market have woken up to what’s going on…so there’s not nearly the arbitrage that has existed in the past between public and private values.”
Blackstone, which is currently raising a $15 billion private equity vehicle, is also on the fundraising trail for its fifth domestic real estate fund. That vehicle, which is widely expected to soon close on approximately $5 billion, will be the largest private equity real estate fund ever raised.