The number of major players in the industrial real estate world just got a little smaller. Private equity giant Blackstone just announced plans to buy commercial real estate REIT PS Business Parks Inc. in a cash deal totaling $7.6 billion. The agreed upon price is roughly a 15% premium over PS Business Parks’ average share price for the past two months. Once the take private deal is finalized, Blackstone will add about 27 million square feet of industrial and office properties, business parks and multifamily housing properties to its already expansive portfolio.
Who is Blackstone?
Blackstone is the largest owner of commercial real estate in the world. Blackstone’s real estate business was founded in 1991 and currently has over $298 billion of investor capital under management. As the largest owner of commercial real estate globally, they own and operate assets across every major geography and sector, including logistics, residential, office, hospitality and retail.
Who is PS Business Parks?
PS Business Parks, Inc., is a REIT (NYSE:PSB) based out of Glendale California that has a solid industry reputation for their multi-tenant industrial, industrial-flex, and low-rise suburban office spaces. Their business model involves acquiring, developing, and operating commercial properties, predominantly located primarily in major coastal markets. At the time of this writing, the PS Business Parks portfolio consists of approximately 96 properties that serve approximately 4,900 tenants in 27 million square feet of space and 800 residential units.
History Behind the Name “PS”
Back in 1998, PS Business Parks came to be as a spinoff of self-storage giant Public Storage. The spinoff allowed Public Storage to focus on its core business of warehousing and storage, plus give its overlooked office and industrial assets greater value. Back then, a majority of the large investment dollars were going towards larger industrial parks and offices. These small suburban business parks with fewer and smaller sized tenants of just a few thousand square feet each, was a prime and untapped niche that would later become a highly desirable asset class as logistics became a more critical piece of the online shopping experience.
The transaction is expected to close in the third quarter of 2022, subject to approval by PS Business Park’s stockholders and other customary closing conditions. As part of the take-private deal, Blackstone will pay $187.50 cash to PS Business Parks shareholders, representing a 12% premium over share price as of the time of this writing. The company’s largest shareholder, Public Storage (NYSE:PSA), which holds approximately 26% of the outstanding shares of PSB, has agreed to vote in favor of the transaction.
“We are excited to add PS Business Parks’ business park, office and industrial assets to our portfolio and look forward to leveraging our expertise to provide the best possible service and experience for PSB’s customers,” said David Levine, co-head of Americas acquisitions for Blackstone Real Estate, in a statement.
Mergers and acquisitions (M&A) activity involving REITs reached a record high in 2021, driven by a robust U.S. housing market, availability of cheap capital from low interest rates, and strong economic recovery from the pandemic. Blackstone has been a prolific acquirer of REITs, helping drive transaction volumes in the sector to $140 billion in 2021, up from $17 billion in the previous year, according to real estate services provider JLL.
Furthermore, Blackstone has already already pursued three REITs in 2022 alone. Some of their notable deals of the year include Student housing REIT American Campus Communities Inc at $12.8 billion and Multifamily housing REIT Preferred Apartment Communities for $5.8 billion.
Although PS Business Parks already had underlying ties to major real estate REIT Public Storage, this acquisition sets the stage for further portfolio consolidation in the commercial real estate arena. The most likely motivation behind Blackrock’s move would be to capitalize on the rising mortgage rates. With smaller industrial tenants being one of the most stable and fastest growing base of tenants, this move appears to be a low-risk long-term play for Blackrock to lock in low interest rates and confidently ride out any market uncertainty that may arise.