Blackstone Group LP is seeking commercial properties in Australia that it can fix and sell, betting real estate prices in the Pacific nation don’t reflect the economy’s strength.
“We tend to look for assets that are of good quality but have something wrong with them,” Alan Miyasaki, senior managing director at Blackstone, said in a telephone interview yesterday. “In these situations, we can fix the issue and then look to sell a good quality stabilized asset to long-term institutional investors.”
The world’s largest private-equity firm last month partnered with Morgan Stanley to pay about 388 million pounds ($598 million) to buy 809 million pounds of Australian corporate real estate debt from Lloyds Banking Group Plc. Blackstone in April 2011 agreed to buy Valad Property Group, which was struggling to pay off debt after the value of its assets slumped, and had seen its share price plunge.
Blackstone sees “very attractive” real estate yields in Australia, as the economy’s strength hasn’t filtered through to sentiment in the real estate market, Miyasaki said.
Yields for secondary office properties in Sydney averaged about 8.1 percent, broker Colliers International said in its first-half 2012 Sydney office report. That compared with an average dividend yield of 5.1 percent on the S&P/ASX 200 share index, according to data compiled by Bloomberg, and a 10-year government bond yield of 2.87 percent.
Blackstone’s purchase of Valad is giving it access to more Australian properties and transactions, Miyasaki said.
“When we were the guys only operating from outside Australia, it was more challenging,” he said. “Since buying Valad, we have a strong platform and presence in Australia, which assists us in looking at and executing potential transactions.”
Blackstone bought 149 Castlereagh Street in Sydney’s city center in January and is in the process of leasing it, he said.
Australian commercial property received about A$4.06 billion of foreign investment in the first half, up from A$3.8 billion in the first six months of 2011, Colliers said in a release on July 9. Overseas groups accounted for 40 percent of all commercial property transactions during the half, driven by the nation’s “stable economy and high-yielding assets,” according to the statement.
New York-based Blackstone, run by Stephen Schwarzman, was the biggest buyer of commercial real estate in the U.S. in 2010 and 2011, spending about $16.7 billion for strip malls, warehouses and suburban office properties. Among its biggest deals was the $9 billion purchase of more than 500 shopping centers in the U.S. from Melbourne-based Centro Properties Group, which has since been restructured and renamed Centro Retail Australia.
Affiliates of Blackstone’s Real Estate Partners VII fund, which is seeking to raise as much as $13 billion to invest globally, also bought 65 industrial properties in the U.S. from Sydney-based Dexus Property Group for $770 million in April.