Blackstone to Buy Gramercy Property Trust for $7.6B

The transaction will add more than 80 million square feet of high-quality industrial properties to the private equity giant’s holdings.

By Barbra Murray

1 Rocket Road in Hawthorne, Calif.,
1 Rocket Road in Hawthorne, Calif.

Gramercy Property Trust will soon be snapped up by The Blackstone Group. The commercial real estate investor and asset manager has inked an agreement to be acquired by Blackstone Real Estate Partners VIII for $7.6 billion in cash.

“We believe this validates the quality of the portfolio and platform that we have built. Entering into this transaction with Blackstone fulfills our Board of Trustees’ mission to maximize shareholder value,” Gordon DuGan, CEO of Gramercy Property Trust, said in a prepared statement.

Gramercy enters the merger agreement with a wholly owned portfolio of predominantly industrial facilities that encompasses, as of the close of the first quarter of 2018, 362 high-quality properties totaling approximately 80.8 million square feet across the U.S. The portfolio is 97.3 percent occupied and features a roster replete with premier tenants, including SpaceX, which maintains its headquarters in the 515,000-square-foot flex-industrial building at 1 Rocket Road in Hawthorne, Calif., roughly 10 miles from downtown Los Angeles. Gramercy also has ownership interests in 20 assets held in unconsolidated equity investments in the U.S. and Europe, and a small presence in Asia. Blackstone will claim it all as its own with the purchase of all outstanding common shares of Gramercy for $27.50 per share.

Gramercy isn’t alone in its favorable view of the deal; some analysts believe the timing is right, and the price is right, too. “[Gramercy] didn’t want to wait for the market to realize the value of their portfolio,” Michael Carroll, director with global investment bank RBC Capital Markets, told Commercial Property Executive. “The REITs have been trading at a discount to underlying NAV, and Gramercy was one of them. But by having a private equity firm pay 15 percent above where they’re closing at is a pretty attractive jump in price. The valuation is fair, and you could see more of these popping up if private market investors believe in the value of the portfolios.”

Public-to-private moves

Gramercy and Blackstone expect the transaction to close in the second half of 2018, at which point Gramercy will no longer be a public REIT, but a private company. The deal marks the largest private equity buyout of a U.S. public company in 2018 to date, according to law firm Simpson Thacher & Bartlett LLP, which is serving as legal advisor to Blackstone on the Gramercy acquisition.

There have been more than a few private equity buyouts of public REITs over the last several months, with transactions ranging from big to bigger. Kayne Anderson Real Estate Advisors’ completed its $825 million purchase of Sentio Healthcare Properties Inc. in September 2017, and a Greystar Real Estate Partners-led fund closed the $4.4 billion acquisition of Monogram Residential Trust in September as well.

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