October Issue: Blackstone’s Summer Blockbusters

After its busy summer of real estate dealmaking, Blackstone saved its biggest buy of the season for last.

Blackstone will acquire the Hotel del Coronado in San Diego as part of its nearly $6 billion purchase of Strategic Hotels & Resorts Inc.

By Barbra Murray, Contributing Editor

After its busy summer of real estate dealmaking, Blackstone saved its biggest buy of the season for last: the $6 billion acquisition of Strategic Hotels & Resorts Inc.

Expected to close during the first quarter of 2016, the deal for the Chicago-based REIT will add significantly to Blackstone’s stable of hospitality trophies. Among the 17 luxury hotels are landmarks like JW Marriott Essex House in Midtown Manhattan and San Diego’s Hotel Del Coronado. Also included in the portfolio are Four Seasons, Fairmont and Intercontinental flags in top markets.

“From a strategic perspective, this is what Blackstone does,” Stephen Boyd, a REIT analyst and director of Fitch Ratings Inc.’s Gaming, Leisure and Lodging Group, told Commercial Property Executive. “Blackstone historically has a strong appetite for hotel companies and has done a number of privatizations in the past.”
The Strategic announcement came on the heels of an equally intriguing—if less glamorous—acquisition. On Aug. 21, Blackstone said that it would buy a majority stake in the parent company of Stearns Lending L.L.C., a 26-year-old national mortgage lender.

The deal, which is scheduled to close by the end of the year, gives Blackstone an experienced, highly credentialed mortgage industry player. Earlier this year, Inside Mortgage Finance named Santa Ana, Calif.-based Stearns the nation’s top wholesale lender. Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development count the firm among their approved lenders.

“The rationale for a fund investment in Stearns is generally the same across all fund investments, which is to make money for limited partners, and by extension unitholders, by generating a return on that investment,” said Stephen Ellis, director of equity research for Morningstar Inc.

Experts gave the pending partnership favorable initial reviews. “The acquisition of an interest in Stearns is in line with Blackstone’s strategy to own best-in-class operating platforms, rather than simply accumulating individual assets,” said Jahn Brodwin, senior managing director with FTI Consulting. “This is a strategy that other mega-funds, pension funds and sovereign wealth funds have done as well. Blackstone has simply done it bigger and quicker.”
For its part, Stearns predicted in the statement announcing the deal that teaming with Blackstone will fuel its efforts to grow market share and profits. Yet there may be more to Blackstone’s strategy than meets the eye.

“What makes the Stearns investment interesting is that Blackstone also owns Invitation Homes, which is the largest single-family homeowner in the United States with more than 45,000 rental homes,” Ellis pointed out.

“The opportunity then for Blackstone is to potentially share insights between Stearns and Invitation Homes to make better fund investment decisions, as well as increase the value of both investments through strategic moves.”