In its largest multifamily deal to date, Blackstone agreed to buy Apartment Income REIT, known as AIR Communities, for roughly $10 billion in the latest sign of the private-equity giant's push into the property type after pausing investments for much of 2023 due to higher interest rates.

The all-cash deal will see the Blackstone fund Blackstone Real Estate Partners X acquire all outstanding shares of AIR Communities for $39.12 per share, 25% more than Friday’s closing price. Along with the $10 billion purchase, including assumed debt, New York-based Blackstone plans to invest another $400 million to improve the AIR Communities properties and may spend more to boost growth.

“AIR Communities represents the highest quality, large scale apartment portfolio we have ever acquired, and is located in markets where multifamily fundamentals are strong,” Nadeem Meghji, global co-head of Blackstone Real Estate, said in a statement.

The move comes after the world's largest commercial real estate owner said it would be looking to invest through acquisitions once it concluded the Federal Reserve would probably stop raising interest rates. Analysts said this deal is an early signal of Blackstone’s conviction rates will stabilize, echoing statements in a Blackstone earnings call last year when President Jonathan Gray said 2023 would mark a “cyclical bottom.”

The AIR Communities portfolio includes 76 multifamily properties with more than 27,000 units largely focused in coastal markets including Miami, Los Angeles, Boston and Washington, D.C. The company reported 9.3% operating income growth in 2023 from properties it owns and manages, financial firm Morgan Stanley said in a note to clients about the deal.

In December 2020, AIR Communities split from Denver-based apartment owner Aimco in a move that created two distinct publicly traded entities. At the time, Aimco said it wanted to focus solely on apartment development after deeming an offer by an outside investment group to buy some properties in the AIR Communities portfolio inadequate. AIR Communities recently joined the list of the largest U.S. apartment owners complied by the National Multifamily Housing Council trade group, ranking 46th out of 50.

“The business the AIR team has built will be improved and expanded by collaboration with Blackstone and a shared focus on serving residents and investing wisely,” Terry Considine, president and CEO of AIR Communities, said in a statement.

The deal with Blackstone was unanimously approved by the AIR Communities board and is expected to close in the third quarter. The sale will still need to be approved by company stockholders, and AIR Communities has suspended payments of its quarterly dividend. Blackstone didn't reply to a CoStar News email seeking further comment.

Blackstone began teasing it would come off the sidelines to begin spending again as early as the fourth quarter of 2023, with Gray hinting the company could increase investment activity as it sat on a pile of cash.

“Ultimately there will be real estate to buy and real estate to sell, and with our $66 billion of dry powder, I think we’re going to be in a really unique position,” he said during a company’s third-quarter earnings call.

He added that “we raised this $30 billion-plus global fund. I think we've invested less than 5% of that fund today. … So, we think we’re well positioned in this environment, particularly if banks pull back and there are liquidity shortfalls.”

In preparation, Blackstone promoted Meghji in January to oversee its global real estate fund along with Kathleen McCarthy. Meghji joined Blackstone Real Estate in 2008 and had overseen the company’s real estate holdings in the Americas, helping Blackstone grow its U.S. and Canadian real estate business across several investment strategies.

Not long after Meghji's promotion, Blackstone announced a deal to purchase Tricon Residential, a Toronto-based multifamily developer with roughly 38,000 build-to-rent houses in the United States for $3.5 billion. The purchase included plans to complete Tricon’s $1 billion pipeline of single-family rentals and $2.5 billion in apartment projects across Canada.

The deal brought Blackstone back into a portion of the multifamily market it pioneered with the launch of Invitation Homes following the Great Recession. By the time Blackstone sold its stake in Invitation Homes in November 2019, the company had become the largest owner of single-family rentals in the United States.

Analysts have predicted a more active 2024 for the commercial real estate industry after investment deal volume in 2023 reached roughly half of 2022 levels. Speaking via video conference at Nareit’s REITwise conference last month in Hollywood, Florida, Robin Panovka, a partner at the law firm Wachtell, Lipton, Rosen & Katz, predicted a resurgence of deals if interest rates stabilize.

"If interest rates continue to moderate, I think you'll see private equity back in the game," he said.

Morgan Stanley analysts commenting on the AIR Communities deal also mentioned interest rates, saying “this transaction demonstrates that [Blackstone] can put capital to work in the current rate backdrop” and predicted a positive impact on “the rest of the apartment sector after a hiatus amid the Fed hiking cycle.”

Gray said real estate values reaching their nadir, along with strength in multifamily fundamentals, were likely to increase deal activity.

“We believe we're now heading into a better environment … with inflation and cost of capital headwinds moderating,” he said. “While it will take time, we can see the pillars of a real estate recovery coming into place. We are, of course, not waiting for the all-clear sign and believe the best investments are made during times of uncertainty.”