DALLAS  - Blackstone is storing up some value in its latest warehouse deal. One of the buyout firm’s funds is paying $7.6 billion for Gramercy Properties. The dearth of other industrial real-estate companies and rising demand for space, fueled by the likes of Amazon, could have made it tempting to overpay.

The private equity firm is jumping into something of a property-grab for industrial real estate investment trusts. As e-commerce firms look to lease more physical hubs to organize U.S. deliveries, companies that own giant warehouses are in demand. Last week Prologis bought DCT Industrial Trust for $8.4 billion. With Blackstone’s purchase of Gramercy, the number of publicly traded industrial REITs would go from 13 to 11, according to industry lobby firm Nareit.

After completing its all-cash deal for Gramercy and its $1.8 billion purchase of Canyon Industrial Portfolio in March, Blackstone will manage some 450 million square feet of industrial real estate. Small wonder it has been snapping up assets. Occupancy rates for industrial REITs are at nearly 97 percent, according to Nareit, higher than apartments, retail and office REITs. Same store net operating income has risen 11 percent in a year while dropping for all other types of commercial real estate, as industrial REIT managers have been able to raise rents.

The yields for industrial properties are below other sectors, but Blackstone seems to have taken a temperate approach, relatively speaking. Prologis’s capitalization rate for DCT, or the yield relative to the purchase price, was roughly 4.4 percent not including roughly $80 million of synergies, according to research from SunTrust Robinson Humphrey. But Blackstone’s offer considering all of Gramercy’s properties comes in around 6 percent, including small bits of office space and cold storage. The figure for the industrial properties alone is 5.8 percent, reckons SunTrust.

The short-term risk Blackstone faces is the potential for another bidder to show up, as implied by Gramercy’s stock trading above the buyout shop’s bid. Longer term, the danger is that Amazon and others start converting other types of space – especially vacant malls – to suit their needs. That makes Blackstone’s decision to keep a lid on overexuberance all the more important.

CONTEXT NEWS

- A Blackstone fund is buying Gramercy Property Trust for $7.6 billion, the companies said on May 7. Blackstone Real Estate Partners VIII will pay $27.50 a share in cash for the company, a 15 percent premium over the previous trading day.

- Gramercy Property manages primarily industrial real estate, with properties in cities including Houston; Memphis, Tennessee; Chicago; and Raleigh, North Carolina, as well as in both the New York and Los Angeles areas.

(Editing by Antony Currie and Amanda Gomez)

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