Photographer: Ron Antonelli/Bloomberg

Goldman Sachs Said to Have Lost $1.8 Billion U.S. Property Deal

  • Blackstone instead won auction by Swedish pension Alecta
  • Purchase includes retail, office properties across the country

Goldman Sachs Group Inc. was the original winner of Alecta’s U.S. real estate sale before the transaction fell apart amid a disagreement over terms, leading Blackstone Group LP to prevail with a $1.8 billion deal, said people with knowledge of the matter.

Goldman Sachs was initially awarded the U.S. and U.K. properties being sold by the Swedish pension manager and given a short amount of time to do additional research on the assets. During that period of about a week, a dispute arose that prompted Alecta to agree to sell the U.S. buildings to Blackstone instead, said the people, who asked not to be named because the transaction is private.

Goldman Sachs will proceed with the purchase of Alecta’s U.K. assets, according to the people. The U.K. properties are valued at about $450 million, said the people.

Representatives of Goldman Sachs, Alecta and Blackstone declined to comment. Jones Lang LaSalle Inc., the broker on the deal, also declined to comment.

The U.S. portfolio includes 22 properties across the country, mainly retail and office buildings. Stockholm-based Alecta hired Jones Lang in April to sell the properties, saying at the time that the assets had performed well but were an “organizational anomaly” and strong real estate markets made it a good time to sell.

Signs of slowing in the U.S. commercial real estate market after a six-year boom may have contributed to a disagreement over the price of the assets, one of the people with knowledge of the auction process said.

Property Expansion

The bid by Goldman Sachs comes as the bank has been rebuilding its real estate business since disbanding its Whitehall property funds, which were hit hard during the financial crisis. Top executives of Whitehall left the firm and Goldman Sachs shifted its real estate focus to lending from buying properties.

In 2010, the company began to expand in core real estate: low-risk, stable, income-producing properties. In 2013, Goldman Sachs teamed with U.S. apartment developer and manager Greystar to buy a group of residential complexes across the country for about $1.5 billion, later bringing in Canadian pension fund Ivanhoe Cambridge as a third partner.

Two years ago, Goldman Sachs completed fundraising for its second real estate credit pool at $4.2 billion. The firm at the time said it would be “opportunistic” in investments and would look in the U.S. and Europe.

Blackstone, the biggest private equity investor in real estate, is now set to acquire properties that include high-quality shopping centers in California, two retail buildings housing Sephora and Disney stores on Chicago’s Magnificent Mile and an office building in Washington that was featured in President Barack Obama’s push to make commercial buildings more energy-efficient.

Alecta expects to complete the sale by the end of the year or in the first quarter of 2017, said Per Frennberg, chief investment officer of Alecta. He declined to comment on the auction process, citing confidentiality.

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