Bizjournal: Some of the main drivers for the acquisition of LPT included: 1) Prologis will take on a little more than 1,600 acres that Liberty has banked. 2) There was a lot of overlap that helped bolster either tenant relationships or grow Prologis' depth in a market. 3) Prologis intends to sell some of Liberty’s industrial and office properties, which may include the Comcast Center. 4) The Lehigh Valley has been a market Prologis has been trying to grow in for years. 5) Not all employees will get folded into the merged company.

Authored by: Natalie Kostelni (bizjournal)

My thoughts: I first covered this story eight months ago, when the WSJ reported that activist hedge fund, Land & Buildings, did not feel Liberty Property Trust’ plan would adequately close the gap between the current share price and the intrinsic value of the company. Rising rents, premium portfolio trades by the likes of Blackstone (acquisition of GPT) and Prologis (acquisition of DCT), and Amazon’s takeover of the world have pushed firms like Duke Realty and LPT to fully commit to industrial. Unfortunately, the commitment happened a little too late and the REITs were not able to move as quickly as the barons of wall street demanded.

BREAKING NEWS: Liberty Property Trust is being bought by Prologis Inc. in a deal valued at $12.6 billion. Under terms of the transaction, Prologis will acquire Liberty in an all-stock transaction including the assumption of debt. Liberty shareholders will receive 0.675 of Prologis shares for each Liberty share they own. The sale of Liberty to Prologis is the culmination of a multi-year effort by Liberty that started in 2009 to transform itself into an industrial real estate investment trust focused on owning and developing warehouse distribution centers across the country. The companies said in a statement that Prologis’ acquisition of Liberty would strengthen Prologis’ presence in the logistics hubs of the Lehigh Valley, Chicago, Houston, Central Pennsylvania, New Jersey, and Southern California. It involves a portfolio that Liberty has accumulated totaling 107 million square feet, 5.1 million square feet in projects under development, and 1,684 acres of land for future development that could add another 19.7 million square feet. The deal is expected to close during the first quarter of next year.

NREI: Despite low cap rates, Black Creek still sees opportunities in industrial acquisitions. NREI recently talked to the firms CEO, Raj Dhanda, about recent capital raising and the market climate for new acquisition and development opportunities: Black Creek’s holdings currently span about 67 million sq. ft. of industrial, multifamily, office and retail assets. The firm's fundraising had surged to $702 million through July 31, 2019, including $290 million in equity commitments from institutions. During the first seven months of the year, the firm acquired 4.7 million sq. ft. of assets and has 3 million sq. ft. of industrial properties under construction.

BISNOW: $41B — Even if Blackstone used conservative leverage of around 50%, the new fund will be able to buy $41B of assets. $14.7B — The equity recouped for investors from sales in the 12 months to the end of June. That means that in spite of worries about an impending downturn, it is very much a net buyer. $47B — The amount of equity that it has in its war chest still ready to spend. 15% — The internal rate of return of Blackstone’s last global real estate fund. The IRR on investments it has already sold is 27%. $562M — Blackstone earned $562M in net fees from managing $112B of fee-earning real estate assets in the first half of 2019. On top of that flat management fee, it earned $17M of performance fees. $212M — Managing that amount of assets profitably doesn't necessarily come cheap. The firm paid $212M in compensation in the first half of the year. According to its website, the real estate team has 527 staff, so that works out at an average of $403,436 per person for the first half of the year.

WSJ: Despite an increasingly tough commercial property market, Blackstone LP has finished raising the largest commercial real estate fund ever, with $20.5 billion of commitments. Its previous real-estate fund, which closed in 2015, raised $15.8 billion, which was the record until now. Blackstone’s “opportunistic” funds—which take higher risks in pursuit of higher returns—have delivered annual average net returns of 15% over the past 27 years, according to company filings. Blackstone also has been a leader in recent years because pension funds, endowments, and other investors have been gravitating towards big brand names in the private-equity world.

CPE: Harrison Street targets $4 Billion in properties related to healthcare. According to Preqin, investment in properties related to health care, senior living, and life science has been increasing for the past ten years. Harrison Street Real Estate Partners VII raised $1.3 billion at its final closing, exceeding its original $950 million target. Chicago-based Harrison raised an additional $302.5 million to invest alongside Fund VII, for a total of $1.6 billion of equity raised and total buying capacity of about $4 billion. Existing investors accounted for approximately 65 percent of the total capital contributed to Fund VII, which attracted more than 60 global institutional investors. Now that Harrison has raised the new capital, it's time to put it to work. Fund VII has already committed 26% of the money to deals.

WSJ: After a sluggish end to 2018, real-estate investment trusts are showing promise again. According to the Wall Street Journal, Vanguard Real Estate ETF (VNQ), which is a proxy for the REIT sector, is up 21%. Rising interest rates and a slowdown in global economic growth were poised to be headwinds for REITs, but the securities may have gotten a reprieve. The Federal Reserve’s decision to pause interest-rate increases is a tailwind for REITs, which typically do better in low-interest-rate environments. Duff & Phelps Investment Management Co. Executive Managing Director, John Creswell, says “generally speaking, REITs aren’t as economically sensitive as they have been in the past. The real estate industry has improved its corporate governance and is less dependent on leverage.” Mr. Creswell adds that the asset choices being made by REITs have improved as they focus more on opportunities that can weather the ups and downs of the economy. For example, single-family rental homes, self-storage units, data-center space, and cell towers are pillars in a broad economic slowdown.

BREAKING NEWS: CBRE Group, Inc. announced that it intends to acquire all the issued and to-be-issued shares of London-based Telford Homes Plc. Telford is a leading developer of multifamily residential properties in London, with a development in-process portfolio (total project cost) of $1.66 billion (£1.32 billion). Telford is focused on opportunities to develop middle-market build-to-rent properties, a fast-growing component of the London housing sector. The growth of rental housing is being fueled by changing attitudes about renting versus ownership, higher affordability relative to for-sale housing, and limited supply. “The UK is in the early stages of a secular shift toward institutionally owned urban rental housing, similar to what we have seen in the US over the last two decades,” said Bob Sulentic, president, and chief executive officer of CBRE. The acquisition represents a strategic expansion of CBRE’s highly successful Trammell Crow Company real estate development business to opportunistically expand its development platform over time in the UK and Europe.

The Philadelphia Inquirer: The Demise of Hahnemann University Hospital (Part 1 - Timeline): 1848: Hahnemann opens in downtown Philadelphia. 1928: The hospital moves to North Broad Street, and became the first skyscraper teaching hospital in the United States. 1993: Purchased by Allegheny Health Education and Research Foundation. 1998: Allegheny Health Education and Research Foundation declares bankruptcy, leaving Tenet Healthcare Corp. to acquire its holdings. January 2018: Tenet Healthcare Corp. sold Hahnemann to a California-based private equity firm. March 2019: New CEO, Suzanne Richards, is fired just two months into her tenure as chief executive of Hahnemann. April 2019: Hahnemann was losing $3 million to $5 million a month. The hospital lays off 175 employees to survive. May 2, 2019: Sued for $2 million in unpaid contributions for pensions, health benefits, and training. June 26, 2019: Closing announced. June 30, 2019: Owners file for bankruptcy protection. August 16, 2019: ER will close. August 23, 2019: Auxiliary health-related services will close. September 6, 2019: Hahnemann will cease all operations.

TRD: The development firm, whose chairman is activist investor Bill Ackman, had seen its stock fall in recent years from a high in 2014. WSJ reported profits fell 66% from a year earlier to $57 million as it recorded higher operating costs and a larger income tax bill. A BWS Financial analyst, Vahid Khorsand, said Howard Hughes's embrace of master-planned communities is something that today's investors aren't familiar with. The Dallas-based firm has hired Centerview Partners to advise on; creating a spinoff or joint venture group, recapitalizing, or selling the company entirely, Reuters reported.

The Wall Street Journal: The largest private real-estate transaction ever is a big bet on the continued explosion of e-commerce. The Blackstone Group LP is buying a network of the roughly 180-million-square-foot portfolio of U.S. industrial warehouses from Singapore-based GLP for $18.7 billion. According to people familiar with the transaction, the deal price includes about $8 billion of debt, which Blackstone plans to refinance. The portfolio includes 1,300 properties across the country, many of them near population centers. Alan Yang, GLP’s firm’s chief investment officer, said he is looking forward to expanding in the U.S., where warehouse ownership remains fragmented. Nadeem Meghji, who runs Blackstone’s U.S. real-estate investing activities, said GLP fit with the firm’s focus on “large scale, high conviction, thematic investing.” The deal will make Blackstone one of the largest owners of U.S. logistics properties, expanding its holdings by more than one-third to about 750 million square feet. Blackstone said it would divvy up the assets, putting about two-thirds into its opportunistic real-estate strategy and the remainder into its private real-estate investment trust.

The Real Deal: BREAKING NEWS: The deal is expected to close in the third quarter, subject to HFF shareholder approval. Both companies’ boards have unanimously approved the deal, which values HFF at $49.16 per share based on yesterday’s market close. “The combination with HFF provides a unique opportunity to accelerate growth and establish JLL as a leading capital markets intermediary, with outstanding capabilities”, JLL Global CEO Christian Ulbrich said in the release. According to The Real Deal‘s latest NYC investment sale ranking, Dallas-based HFF was the city’s number four firm by dollar volume, brokering 15 deals worth $3.34 billion. Chicago-based JLL came in seventh, with nine deals totaling $1.54 billion. Once the deal closes, JLL shareholders are expected to own approximately 87 percent of the combined company’s shares, while HFF shareholders are expected to own the remaining 13 percent. The deal comes amid a broader climate of consolidation. Facing an uncertain market, M&A activity among real estate firms has been on the up, hitting $524.7 billion — nearly 25 percent more than the 2007 record of $424.5 billion, according to figures from Thomson Reuters.

Wall Street Journal: The New York real-estate firm RFR Holding LLC and the Austrian real-estate firm Signa Holding GmbH signed a contract to acquire the Chrysler Building for a little more than $150 million. Tishman Speyer, which bought the building and two adjacent properties out of foreclosure in the late 1990s, initially spent $100 million in improvements on the properties. Prior to the recent sale, Tishman owned 10% of the building. The Abu Dhabi Investment Council in 2008 acquired a 90% stake for $800 million. Both firms are unloading the 77-story, classic art deco style office tower at a substantial loss. The Chrysler building faces several challenges that enabled the buyers to nab it for a fraction of the previous sales price. The tower‘s owners don’t own the ground beneath the property and pay rent on the land to the Cooper Union school. According to Cooper Union’s financial documents, the annual ground-lease rent the owners pay to the school jumped from $7.75 million to $32.5 million in 2018 and will go up to $41 million in 2028. The tower also has about 400,000 square feet of space that is vacant, or that will become available in the coming years, which could require about a $200 million investment in the building to attract new tenants.

WSJ: The reason behind the new brand is reportedly to hit a lower price point than the high-end Whole Foods brand, which has quality standards for ingredients that preclude many of the food industry's biggest names. The company is negotiating locations in Seattle, San Francisco, Los Angeles, Chicago and Philadelphia, the WSJ reports. Amazon has reportedly already signed leases for two locations beyond its first location in L.A., with planned openings for early next year. The WSJ reports that shares of major grocers like Kroger and Walmart dipped in reaction to the news.

WSJ: The activist hedge fund, which owns a stake of less than 1% in the real-estate investment trust, has been urging them to explore a wider range of strategic options including a full sale. The Pennsylvania-based trust has a market value of more than $6 billion, and it owns and manages more than 100 million square feet of commercial space. Last year, the PA-based REIT, announced plans to shed more office assets and focus on industrial spaces, but it stopped short of indicating it was open to selling itself. Liberty Property Chief Executive William Hankowsky said those moves over time should improve the company’s stock price. “We are committed to the right long-term strategy for the business, which we believe is a 100% focus in industrial real estate,” Mr. Hankowsky told analysts. Land & Buildings doesn’t feel the current plan will adequately close the gap between the current share price and the intrinsic value of the company, the people familiar with the matter said.

Wall Street Journal: Fundraising for the new global fund was launched last year with an original goal of $10 billion. The firm has been telling investors that its previous flagship funds have produced annual yields in the low-20% range. The firm said more than 150 investors made commitments to the new fund, including sovereign-wealth funds, endowments, foundations and investors in the firm’s newly created private-wealth channel for smaller investors. Brookfield also has committed $3.75 billion to the new fund, partly out of Brookfield Property Partners, L.P. a large public company that Brookfield Asset Management controls. Brookfield said it will focus more on high-quality real estate in top markets and avoid properties that take longer to generate a cash flow, like development sites. Brookfield also will be looking closely at public real-estate investment trusts whose shares these days are trading at steep discounts to what they would be worth if their assets were sold on the private market. Already the global property manager has made 10 investments with more than $5 billion from the new fund. According to data firm Preqin, this is the second-largest private real-estate fund ever to close, slightly smaller than the record $15.8 billion fund that Blackstone Group closed in 2015.

The Press of Atlantic City: Last month, Ocean Resort Casino, formerly known as the Revel, is being sold to one of its lenders. Manhattan-based hedge fund, Luxor Capital Group, will acquire Deifik's share in the property and gain a controlling interest. Ocean Resort's gambling revenue has lagged behind competing casinos in Atlantic. For example, last year the casino took in $90 million in revenue, compared to $161.6 million for the Hard Rock and $710.8 million for the Borgata Hotel Casino. Luxor Capital's strategic investment is expected to close in early February, pending regulatory approvals and final documentation. In the interim, a trustee, who will be appointed once the $70 million investment closes, will oversee the trust until Luxor Capital receives its interim authorization. Capital investments planned by the investment fund include a world-class buffet, additional suite and room product, incremental investments on the casino floor, a substantial increase in its entertainment programming and player events throughout the year. Robert Ambrose, a gaming and hospitality consultant, lauded the proposed improvements but said that Atlantic City really needs to draw more visitors to really help struggling, independent casinos like the Ocean Resort to succeed.

Philly.com: Built for $2.4 billion, the former Revel reopened as the Ocean Resort on June 27, the same day as the competing Hard Rock Hotel & Casino in what had been Trump Taj Mahal.

The Revel had at that point been sitting vacant since September 2014, when it closed due to financial troubles after operating for only 2½ years. Atlantic County records suggest casino-owner AC Ocean Walk LLC, in which Denver-based developer, Bruce Deifik, holds a majority stake.

He has said he made his initial $10 million commitment to buy the casino without ever having visited Atlantic City. Atlantic County clerk’s office records show two outstanding construction liens against the property demanding a collective $1.1 million for lighting displays and work at the casino’s nightclub.

Such liens may not necessarily indicate that property owners are under financial stress since they’re filed by contractors or subcontractors who have performed work on a property but have not been paid.

Alongside its possible financial woes, Ocean Resort has seen churn among its management ranks

Robert Ambrose, the casino consultant, said he sympathizes with Deifik and his team. “It’s a risky business. It was risky building the Revel in the first place.”

Wall Street Journal: Acquiring the site would give Airbnb a way to show investors more growth potential and demonstrate it can branch out beyond its core.

The potential move also points to Airbnb’s desire to show it can move beyond its reputation for renting out quirky homes and apartments into something more like a full-service travel website.

Hotel Tonight, founded in 2010 and based in San Francisco, culls unsold inventory from hotel chains and offers discounted rooms to travelers seeking last-minute deals.

The company was last valued at $463 million in March 2017, in a $131 million funding round. The site’s customer base and revenue have been expanding rapidly since then, and its valuation could be significantly higher now, though it isn’t clear by how much.

Merging private companies is challenging in part because of a lack of public valuation benchmarks. But a purchase of Hotel Tonight would represent a big strategic move, and there is no guarantee it would succeed.

Airbnb has struggled with adding enough inventory of new homes in hot markets for travel and faces growing competition from rivals, including Expedia and Booking Holdings Inc., moving into home and apartment rentals.

Wall Street Journal: Late Tuesday night, the hedge-fund manager continued control of the retailer he ran into bankruptcy court by kicking in an extra $150 million at the last minute.

The deal will keep open about 400 stores and preserve as many 50,000 jobs, but the company continues to lose money and lacks the scale to compete effectively.

Mr. Lampert must also get approval from the Pension Benefit Guaranty Corp for any further asset sales to cover Sears’s pension liabilities. Some retailers such as Mattress Firm Inc. and Payless ShoeSource have re-emerged from bankruptcy after shedding debts and shutting hundreds of stores.

Others such as Toys “R” Us Inc. and RadioShack have disappeared.

At its peak in 2006, a year after Mr. Lampert took control by merging Kmart and Sears, the company operated more than 2,300 stores.

At the time of the Kmart merger, Mr. Lampert was a Wall Street hotshot who was often compared with legendary investor Warren Buffett.

Now, Mr. Lampert has what might be his final chance to prove that his contrarian strategy is the right one. His mantra for Sears is to turn it into an “asset-light” company.

Wall Street Journal: SoftBank Group Corp. has scrapped a planned $16 billion investment in WeWork Cos., and is opting for a smaller deal of about $2 billion.

SoftBank is already a major investor in WeWork having committed more than $8 billion, partly from the Japanese company’s giant tech-investment fund.

Within SoftBank, the strong support for WeWork has been controversial. Several executives questioned the lofty valuation of a company primarily focused on real estate. WeWork has been doubling its revenue every year for the past few years. But the costly renovations associated with expansion have led to heavy losses.

The New York-based business spent twice as much as it made in the first nine months of 2018, posting revenue of $1.2 billion and a net loss of about $1.2 billion. Revenue doubled over the same period in 2017, while losses nearly quadrupled.

WeWork has said the rising losses reflect its heavy investment in growth, and that its individual locations are profitable once they are leased.

Modern Healthcare: Welltower has been making a lot of noise over the past ten months!

March 2018: In partnership with Hines, the healthcare real estate investment trust (NYSE: WELL) broke ground to develop a 16th-story assisted living and memory care community in Midtown Manhattan.

May 2018: In partnership with ProMedica, the healthcare real estate juggernaut entered into a strategic joint venture agreement to facilitate the acquisition of HCR ManorCare and Arden Courts real estate assets from Quality Care Properties.

December 2018: Qatar Investment Authority (QIA) established an interest in the Company's common stock through a $300 million investment and has an option to acquire an interest in a development pipeline of U.S. healthcare properties.

January 2019: Welltower will pay $1.25 billion for a portfolio of 55 Class A healthcare properties owned by CNL Healthcare Properties.

Business Journal: Omega Healthcare Investors Inc. (NYSE: OHI) is expanding its portfolio of nursing and senior homes with the $600 million acquisition of a Tennessee real estate investment trust. Omega will acquire 34 facilities managed by 11 operators in 7 states and approximately $34 million in mortgage loans. Omega will gain nine new operators and increase its non-skilled nursing assets by $296 million. MedEquities stockholders will need to vote on the deal, which has already been approved by both companies boards.

BISNOW: Brookfield, one of the world's largest real estate managers, has been one of the biggest investors in the London office market over the past decade.

Recent changes to U.K. real estate tax laws do not seem to have deterred overseas investors, in spite of some dire predictions.

Brookfield consistently vies with Blackstone as the world's largest real estate owner. In London, it has firmly established itself among the elite, and is only likely to keep growing.

BISNOW: Relentless multifamily construction across the country has finally hit landlords in the pocketbook. According to Zillow, rent growth has slowed nationwide for the fourth straight year ending in July 2018, and the fast-growing cities of the past few years that propped up those numbers have fallen back down to earth.

Much of the construction that chased those growing rents has delivered, giving tenants an unprecedented number of choices and pressuring landlords into greater and greater concessions just to keep rent from falling into the basement. Due to high construction costs, virtually all new construction has been in the Class-A sector of the multifamily market, which has a shallower pool of potential tenants to draw from than older, cheaper supply.

Compounding the issue for landlords is that millennials have finally started to buy houses in greater numbers, according to Zillow. Homeownership among the millennial demographic increased by 1.2% from the second quarter of 2017 to the same period this year. As developers take notice of the issue and pause on new construction new units will likely absorb slowly but steadily over the next couple of years, rather than collapse the multifamily industry.

BISNOW: TPG started off its foray into the real estate services world with a distressed deal. It paid Australian conglomerate UGL around $1.1B for DTZ, the European and Asian property services firm, in June 2014.

UGL had itself picked up DTZ in a distressed deal, when in 2011 the U.K.-listed firm hit a cash crisis and needed to find an emergency buyer. It was eventually sold through an insolvency process. But UGL could not integrate DTZ into its wider business and saw its share price drop after shareholders questioned its strategy, leading to a sale of DTZ.

TPG immediately began the process of bulking up DTZ, and agreed to pay $360M for Cassidy Turley in September 2014. Then in September 2015 it made its biggest bet yet, paying $1.9B for Cushman & Wakefield.

So TPG paid nearly $3.4B for the businesses that make up Cushman today. It then took out a huge slug of its money by loading debt onto the business, around $2.8B, according to the IPO prospectus.

That puts the size of its equity investment at about $600M, for a business where the equity is valued at $3.1B, or a $2.5B paper profit. TPG and its partners only sold 34% of Cushman, retaining a 66% stake.

As the price of the shares rises or falls and TPG sells more of its shares in Cushman, that profit figure will change. But it is safe to say that TPG has done pretty well out of its foray into real estate services.

 

BISNOW: Cushman & Wakefield is the third-largest global player in the commercial brokerage space, trailing only CBRE and JLL. Global giants CBRE, JLL, Colliers International and Newmark Knight Frank have market caps totaling $16.3B, $7.7B, $3.2B and $2.2B, respectively.

Global commercial real estate services firm Cushman & Wakefield launched its initial public offering late Thursday morning, selling 45 million shares for $17 a piece in hopes of raising $765M.  

C&W began trading on a high note, pricing 5.9% above its IPO price on the New York Stock Exchange under the ticker CWK. MarketWatch reports the first trade came in at $18 for 3.5 million shares around 10:18 a.m. The $765M goal values the company at around $3.1B, not including debt. 

Cushman is the second commercial brokerage to go public in the past year. Competitor Newmark Group went public in December in an IPO that fell short of expectations due to concerns regarding poor IPO timing and pricing confusion. 

When Cushman filed its paperwork with the Securities and Exchange Commission in June, the company initially sought to sell about $810M worth of shares at $16 to $18 a pop. Prior to that, whispers circulated that the brokerage giant was seeking to raise $1B through an IPO that would value the company at around $5B. 

BISNOW: Brookfield has reached a deal to buy Forest City Realty Trust,  which is expected to close in the fourth quarter, is valued at $11.4B including debt.

The Forest City portfolio includes 18,500 multifamily units, as well as 10.8M SF of office, life science and retail space in major markets across the country.  Brookfield will acquire Forest City for $25.35/share in the all-cash transaction.

“Forest City has created a high-quality portfolio of operating and development assets over its 100-year history,” Brookfield Property Group CEO Brian Kingston said in a statement.  

COSTAR: The Texas Medical Center, the world's largest medical complex, may now be home to the most expensive U.S. medical office building ever sold. 

A LaSalle Investment Management fund bought the 500,000-square-foot Memorial Hermann Medical Plaza at 6400 Fannin St., anchored by Memorial Hermann’s 175,000-square-foot lease. The Chicago-based investment firm paid $405 million. The asset was 99 percent leased at the time of sale.

It only took two months for the highest medical office building sale price record to be broken. The previous record was set earlier this year when German bank Commerzbank AG acquired a 25-story, 390,000-square-foot office building in New York City, the Langone Tower at 222 E. 41st St., for $332.5 million from Columbia Property Trust, according to published reports at the time.

The deal is the latest sign of investors' appetite for medical office buildings across the country. Last year, 97% of healthcare investors surveyed by CBRE indicated they were most interested in medical office buildings, rather than other forms of healthcare real estate like outpatient ambulatory care facilities or senior housing. 
 

BISNOW: RCCH HealthCare Partners, which is owned by Apollo Global Management, has inked a deal to acquire LifePoint Health, a chain of rural hospitals headquartered in suburban Nashville. The deal is the latest in a wave of consolidation throughout the healthcare industry.

Just last month, another major private equity player, KKR, paid $5.5B to acquire another Nashville company, Envision Healthcare Corp., which provides physician services to hospitals and owns healthcare properties.

Barclays, Citigroup, RBC Capital Markets and Credit Suisse are providing financing for the acquisition. PSP Investments Credit USA LLC and an affiliate of Qatar Investment Authority have committed to provide a portion of the debt financing.

Apollo is paying $5.6B for the healthcare company, which will be taken private once the deal is complete.The financing also includes an equity contribution from funds managed by Apollo. The purchase price of $65/share represents a premium of about 36% over LifePoint’s closing share price on July 20, the last trading day before the announcement.