By Jon Peterson
New York City-based Blackstone Group has made its first investment in the Seattle market in several years with the acquisition of a portfolio of 38 office buildings totaling 2.3 million square feet in the areas of Bothell and Redmond East, according to sources familiar with the transaction. This transaction was part of a global debt/equity platform that was acquired from GE Capital Real Estate.
Blackstone declined to comment when contacted for this story.
The current occupancy on the portfolio is around 80 percent. This will give the new owner a chance to bring in some new tenants as the portfolio is under-occupied now in comparison to market occupancy for Bothell and Redmond East. Equity Office Properties will be working with Blackstone on the management of the office portfolio. Equity Office has not made a final decision yet as to whom it will hire to assist them in leasing up the empty space.
The suburban office markets of Seattle like Bothell and Redmond East do offer tenants a less expensive alternative for rental office space than in markets like Bellevue and downtown Seattle. The difference in rent can be somewhere in the range of 20 percent to 30 percent, according to sources that are involved in tracking this information.
Blackstone is buying the portfolio for its closed-ended commingled fund, Blackstone Real Estate Partners Fund VIII. This is an opportunistic investment fund. This deal is the first closed transaction for the commingled fund. The $15 billion capital raise was completed by the manager in April of this year, and it attracted many of the largest pension funds in the country as investors. This included $300 million from the Pennsylvania Public School Employees Retirement System and $100 million from the New Jersey Division of Investment.
The targeted returns for this commingled fund are a net 15 percent IRR and a 1.7x equity multiple. Blackstone is only looking at transactions for Fund VIII that include an equity component of at least $50 million.
The real estate manager’s interest in Seattle could involve an investment in any of the major property types. Blackstone has also looked at deals in Seattle for another commingled fund that the manager has, the Blackstone Property Partners. This investment fund has a core plus investment strategy, so it is conceivable that this could be where the manager buys existing assets with a strong current income that also have a chance to add value in the future.
Blackstone Property Partners has an open-ended investment structure. This means that the investment fund is always open to accepting new capital commitments.