Developer Prologis agreed to buy 14 million square feet of U.S. logistics properties for $3.1 billion from funds affiliated with Blackstone Group in what would be the largest industrial-only portfolio acquisition of the year.
Prologis, the world’s biggest developer of warehouse and other distribution-related real estate, said it will pay cash for the 70 properties in a deal expected to close by the end of the month. The transaction is the latest between two giants: Blackstone bills itself as the largest global property owner.
The deal involves commercial real estate in major markets and constitutes a long-term bet on growth, with Prologis saying it expects to hang onto the property for some time. While the agreement is a positive sign of investor interest in industrial assets that are focused on consumer purchases, it also comes at a time of slowing demand and value growth for the property type that could reflect the buyer's interest in holding the assets.
At their recent peak, industrial property values were increasing 5.4% quarterly in the second quarter of 2021, according to CoStar data. That slowed to 2.1% in the second quarter last year, and to 0.5% so far this quarter.
“U.S. industrial market performance is downshifting heading into mid-2023,” according to CoStar’s second-quarter national industrial report. “While the national vacancy rate is expected to remain below its 20-year average of 7.3%, the next six to 12 months could still prove one of the more challenging periods for the market over the next five years.”
These trends signal downside risks for tenant demand, according to CoStar. However, the first quarter is normally the weakest.
Expansion in Large Markets
The properties Prologis is acquiring are concentrated in and around U.S. cities with large populations, with 60% well positioned for direct-to-consumer delivery, the San Francisco-based company said in an email to CoStar News.
The acquisition expands Prologis’ presence in markets that include Atlanta; Baltimore and Washington, D.C.; Southern California, Central Valley California and the San Francisco Bay Area; Dallas; Las Vegas; New York and New Jersey; Phoenix; and South Florida, the real estate investment trust said a statement.
"These high-quality properties are complementary to our portfolio and fit perfectly into our long-term strategic plan for growth," Dan Letter, president of Prologis, said in the statement. "The acquisition demonstrates our unique ability to add significant scale to our portfolio — expanding customer relationships and increasing opportunities."
Among the properties to be acquired is the 208,534-square-foot 3602 W. Washington St. in Phoenix, according to an email to CoStar News from Blackstone.
Blackstone Real Estate Partners VIII originally acquired this property as part of a $5.72 billion purchase of 445 buildings from DigitalBridge Group in 2019.
Prologis said it plans to hold all the properties.
Prologis reported 98% occupancy in the first three months of the year — a slight increase from the same time in 2022 — as e-commerce spending picked up and helped drive leasing of warehouses.
“As we see it, [Prologis’] acquisition highlights how it can move quickly and opportunistically in the transaction market,” Michael Goldsmith, a UBS REIT analyst said Monday in a note to clients. “Specifically, adding 14 million square feet of warehouses in prime U.S. markets is supportive of the company's cluster strategy. As we understand it, the portfolio consists of smaller warehouses, with 50% below 250,000 square feet and the other 50% between 250,000 to 500,000 square feet.”
Prologis and New York-based Blackstone have completed more than a dozen transactions together in the past 11 years.
Prologis “has a history of acquiring Blackstone portfolios. We think this transaction deepens that relationship,” Goldsmith said. “Based on such, we believe that Prologis has a solid visibility into how it can generate more from these assets over time and drive accretive returns.”
Prologis also is seeking a preliminary 5.25% bond offering for an unspecified amount to be used to fund the purchase, according to a filing with the Securities and Exchange Commission.
If the deal closes as scheduled, it will be the largest industrial-only portfolio purchase of the year surpassing CBRE Investment Management’s $539 million acquisition of a partial interest in a four-building portfolio sold by BlackRock in February, according to CoStar data.