US giant Blackstone swoops on stake in $3.5bn Dexus logistics trust

Blackstone is preparing to put its stamp on the rampaging industrial property market with a near half-stake in the $3.5bn Dexus Australian Logistics Trust.

Jonathan Gray, president of Blackstone Group. Picture: Bloomberg

US private equity giant Blackstone is preparing to put its stamp on the rampaging industrial property market as it negotiates to take a near half-stake in the $3.5bn Dexus Australian Logistics Trust.

The company is renowned for big-ticket plays in property around the world and is investing as the e-commerce boom and supply chain shake-up triggered by the coronavirus crisis become permanent features of business.

Customers are demanding faster delivery, which has prompted big corporations to pour billions into supply chains as they require larger, more efficient warehouses to stay competitive.

Blackstone is in talks to take up a 49 per cent interest in the DALT, which Singaporean sovereign wealth fund GIC is looking to exit after successfully backing the vehicle when it set up in 2018, before the market’s dramatic rise.

Dexus manages the fund and holds a 51 per cent in the vehicle, which has performed strongly as it moved ahead of the cycle to snare properties and key development sites. The Singaporean fund benefited from Dexus expanding the vehicle by buying and developing properties for it, with returns bolstered by soaring demand for industrial stock that has seen the value of warehouses soar.

Blackstone had already benefited from the rise of industrial property and had assembled one of the country’s largest ever portfolios – dubbed Milestone Logistics – before selling it off earlier this year for a record $3.8bn to Asian logistics giant ESR.

GIC backed that trade by taking an 80 per cent interest in the ESR fund that picked up the Milestone portfolio, and exiting the Dexus fund would help rationalise its holdings. It remains close to Dexus, which it backed to buy an interest in Melbourne’s Rialto Towers as the pandemic struck.

Blackstone had been looking to get back into the sector at scale, and buying into the DALT vehicle was one of the few ways in which it could get such a substantial holding as the property market is fiercely competitive.

A combination of Dexus, which sports one of the largest development books in the sector, and Blackstone, which brings substantial firepower, could help the DALT vehicle expand in the increasingly aggressive marketplace.

The parties declined to comment on the transaction, which comes amid a run of big-ticket industrial purchases.

Just last week GPT bought the $800m Ascot portfolio, with some smaller office buildings carved off to MA Financial. Qantas also reaped $802m from selling a land parcel to property funds manager Logos, acting for a consortium including AustralianSuper and the Abu Dhabi Investment Authority.

Industrial property has been rerated as consumers have switched to e-commerce with rising returns driven by big price rises rents expected in coming years as the wave of new warehouses struggles to keep up with surging demand for space.

Blackstone’s pending investment also displays its confidence in the recovery of the local market.

In a separate move it is poised to step into the shoes of sovereign wealth fund China Investment Corporation and take control of a 75 per cent interest in Grosvenor Place in Sydney in a play worth about $1.4bn.

The investment group’s confidence in the logistics sector shows the shift in the market is more permanent, with the most active players, including Goodman Group, Charter Hall, Logos and Lendlease, all flagging more deals to come.

At an update this month Blackstone said that nearly 70 per cent of its property holdings were concentrated in logistics, rental housing and life sciences office areas.

Blackstone president Jonathan Gray said the third quarter was the company’s busiest ever, with $US37bn invested and an additional $US30bn committed to pending deals.

Dexus unveiled the original joint venture with GIC in 2018 and billed the wholesale unlisted logistics trust as a $2bn vehicle. The fund pursues an active acquisition and development mandate.

The Darren Steinberg-led Dexus now runs a $25bn funds empire and has pushed deeply into logistics, including the purchase of Perth’s Jandakot Airport as part of a $1.5bn portfolio it acquired in September.

The portfolio is heavily weighted to the strongly performing Sydney and Melbourne markets and traditional logistics facilities, which are leveraged to the growth of e-commerce.

On the ground the industrial market is steaming ahead as the economy reopens and big companies take up more space. Real estate agency JLL calls the occupier market “red hot”.

Gross take-up of logistics and industrial space has exceeded 1.1 million square metres nationally for just the third time in history, as the two major capitals come out of lockdown. Activity was dominated by Melbourne and Sydney, which accounted for 46 per cent and 33 per cent of the national total, respectively, despite spending most of the quarter in lockdown.

JLL senior director of logistics and industrial research Annabel McFarlane said that activity in the logistics and industrial occupier market was unprecedented.

“Demand was sourced from a range of sectors this quarter, in addition to the third-party logistics providers and retailers who are riding the e-commerce tailwind. The manufacturing sector continues to be a significant player in the industrial occupier market and has accounted for 20 per cent of the take-up,” she said.

CBRE Research said tenants signed leases for about 3.12 million square metres in facilities across Sydney, Melbourne, Brisbane, Adelaide and Perth in the first three quarters of the year.

“Occupier take-up in Australia has been consistently above the long-term average since 2015, but we’re now looking at record numbers in three consecutive years and significant growth year-on-year,” CBRE head of industrial and logistics research Sass J-Baleh said.