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Blackstone, Prologis Fight for Warehouse Real-Estate Dominance

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At the turn of the century, warehouses were like the nexus of the commercial real estate world. It was safe, predictable and a little boring. But since the end of the Great Recession, they have become one of the hottest sectors in real estate.

With a market capitalization of $100 billion, Prologis has a long history of warehousing investments, with 460 million square feet of warehouse space under management in the United States and over 1 billion square feet worldwide.

The other is Blackstone, a giant $131 billion market capitalization alternative investment firm that has used its capital deployment skills over the last 12 years to bet big on warehouses, moving from 70 million square feet in the US to 370 million square feet. surged to square feet, and worldwide he operates a billion square feet.

The two companies worked together to make deals, competed over them, and in less than a decade became prime landlords of one of the most sought-after real estate properties.

As warehousing spreads across the U.S. landscape and warehousing becomes one of the leading forms of blue-collar employment, these two companies increasingly dominate how the U.S. gets its stuff.

warehouse on top

Logistics and residential real estate are “perhaps the two best-performing sectors in the entire global economy,” John Gray, Blackstone’s president and chief operating officer, said on the July earnings call. said.

About $172 billion was spent on warehouse acquisitions last year, according to global real estate services firm Savills. This is more than four times what he was ten years ago.

The sector has come a long way from the aftermath of the Great Recession. Since early 2010, average US warehouse rents have risen from $4.72 to $8.18, according to data provided by CBRE.

As a result of the boom, warehouse ownership has shifted from a hodgepodge of small businesses and manufacturing companies to a short list of good money managers and companies who have noticed a growing demand for their assets.

CBRE data shows that over the last 12 years, institutional investors have bought more warehouse space than they have sold, and individual owners and owner-operators have sold more space than they have purchased.

In other words, big money is buying warehouse space as fast as smaller owners can sell it.

The coronavirus pandemic has accelerated this change, with investment in warehouses surpassing that in offices in 2020 and 2021. According to CBRE.

The big bang of the warehouse boom

The warehouse boom dates back to the dark ages of 2008. The market downturn has created an opportunity for some of the industry’s biggest companies to reorganize and grow.

Prologis barely survived the Great Recession: in 2010, wall street journal The company said it was “on welfare” during the financial crisis when warehouse rents and demand plummeted.

The Prologis sign next to the green warehouse.

A Prologis warehouse in Ichikawa, Japan. Prologis currently has approximately 1 billion square feet of space worldwide.

Ned Snowman/Shutterstock



By 2011, Prologis predicted a sharp rise in rents in the logistics sector. His $8.7 billion merger with AMB Property Corp. made it the world’s largest industrial real estate company. An early e-commerce company called Webvan the year of 2000.

“The idea was to take advantage of this e-commerce revolution,” said Dan Letter, global head of capital deployment at Prologis, who was in charge of deployment at AMB before the merger. “We may have been a little early, but it was definitely prescient.”

After trading as low as $9 in 2008, Prologis now has nearly 1 billion square feet of space worldwide and trades at about $130. This year it went up to $170.

Prologis wasn’t the only company that thought e-commerce could change the world.

In 2010, Blackstone began aggressively buying cheap warehousing assets, including the $1 billion purchase of 180 assets from Prologis.

David Levine, Co-Head of Americas Acquisitions at Blackstone, said:

The long-term vision, coupled with the short-term woes of operators unable to pay their debts, led to a buying spree building a portfolio comparable to Prologis.

Around 2015, Blackstone put a one-year moratorium on buying warehouses, Levine said.

“We were trying to redo what we did in 2010 and get a feel for how we wanted to invest, how the world had changed, how the markets had changed,” he added.

A large stone blackstone sign on a city street.

In 2010, Blackstone began aggressively buying cheap warehousing assets, including the $1 billion purchase of 180 assets from Prologis.

Eric McGregor/Lightrocket/Getty Images



Blackstone’s new strategy, dubbed “Warehouse 2.0” by Levine, stems from growing consumer demand for faster delivery. The company has shifted from investing in warehouses serving metropolitan areas dozens of miles away to investing in urban warehouses with a focus on so-called last-mile logistics.

It was a well-timed bet. The price per square foot of urban logistics deals increased by 17.2% from the second quarter of 2017 to the second quarter of 2022, according to the company. Avison Young.

One of the biggest challenges in last-mile logistics is the cost of building large single-story warehouses in dense urban areas. That’s why Prologis has been building high-rise warehouses in Tokyo for decades.

As American cities get denser and more expensive, the same thing is happening here. Four years ago in Seattle, America’s first high-rise warehouse.

Prologis, Blackstone and other millionaires compete

Other big money investors are increasingly investing in warehouses. His private equity giant KKR, insurance company Prudential and real estate firm Rexford are all pouring into the sector, which promises high rents and property values.

Bridge Industrial, a Chicago real estate investment firm, is seeing a surge in interest from pension funds eager to invest in warehouses.

Bridge Chief Investment Officer Tony Pricco said: “Do they really want offices or retail? Probably not.”

The real estate investment arm of the $95 billion City of Ontario Employees’ Retirement Plan, one of Canada’s largest pension plans, currently invests 35% of its $63 billion real estate portfolio in warehouses, said its president, Michael Turner. “Four years ago, that number was 9%,” he told Insider in May.

Institutional investors enjoy double-digit returns in this sector. According to the National Council of Real Estate Investment Fiduciaries, which tracks commercial real estate performance data, in the first quarter of 2022, the US industrial sector’s total return was 52.8% year-over-year.

But Prologis and Blackstone are still the biggest investors.

A blue cherry pocker with a worker on the wall of a large white warehouse.

In addition to purchasing warehouses, Prologis builds its own warehouses in areas with warehouse shortages. Its development arm oversees a $5 billion land bank.

Ben Hastie/Media News Group/Reading Eagle/Getty Images



In 2019, a record year for more than $40 billion in warehouse mergers and acquisitions, Blackstone completed and beat the largest private financial deal of its time to double its warehouse space. Prologis to Purchase GLP’s U.S. Assets for $18.7 Billion.

The industry could set another record for warehouse M&A in 2022. Prologis bought Duke Realty for $23 billion earlier this year, the largest commercial property sale of the pandemic. Blackstone has recapitalized European last-mile warehousing company Mileway for $24 billion after Bloomberg reported. Prologis bid for $23 billion Acquired Mileway.

In addition to purchasing warehouses, Prologis builds its own warehouses in areas with warehouse shortages. Its development arm, he oversaw a $5 billion land bank, a collection of land on which Prologis can develop real estate, and initiated about $3 billion worth of development during that time. alone in 2020.

We are also helping tenants avoid nationwide labor shortages by investing millions in training programs for logistics and transportation workers.

In 2018, Prologis launched a community worker initiative at high schools in Miami-Dade County and launched a program to place interns in high schools in Los Angeles and Long Beach.

To date, Prologis’ CWI program has trained more than 13,000 people and plans to train 25,000 people for jobs in transportation, distribution and logistics by the end of 2025, says Stephen Hussein, Workforce Program and Community Vice President of Relations) said. Prologis.

New competitors waiting in the wings

Even if the threat of recession hangs over the warehouse sector, players Amazon delays warehouse expansion plansPrologis and Blackstone hope retailers will set aside more space to prevent supply chain disruptions should a crisis inevitably strike.

Other companies are getting the warehouse space themselves.

Rexford Industrial Realty is actively buying warehouse space in California’s Inland Empire.Clarion Partners has secured 27 million square feet of warehouse space since 2010, according to Savills.British Seguro once sold warehouse space to Blackstone — Now we have our own warehouse for last-mile deliveries that Blackstone may have had on its own.

But Prologis and Blackstone are unlikely to be dethroned anytime soon, said a senior real estate analyst who spoke candidly on condition of anonymity. They compared the dominance of Blackstone and Prologis to Amazon’s dominance in e-commerce.

“Prologis and Blackstone are so big,” analysts said, that future competitors face a difficult situation.

“There are groups like Brookfield, Starwood and KKR, all private equity firms looking to compete with Blackstone,” the analyst said.

The person added that the market is large enough to accommodate larger acquirers, but noted challenges.

“It’s difficult,” said the analyst.

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