Shares of The Blackstone Group L.P. BX and Wells Fargo & Company WFC have risen after both the companies announced a $23 billion deal to acquire majority of the assets of GE Capital Real Estate owned by General Electric Company GE on early Friday.
While share price of Wells Fargo increased marginally, Blackstone’s stock rose 2.4% after securing arguably the largest blockbuster commercial real asset deal in recent times. For Blackstone, this is the largest deal since its acquisition of Equity Office Properties Trust in 2007 for $39 billion.
About the Deal
Out of GE Capital’s $23 billion portfolio, Blackstone will buy $5.2 billion worth of portfolio in the form of office properties located in Southern California, Seattle and Chicago across the U.S. along with other properties in the UK, France and Spain. The firm will finance this part of the transaction through its flagship global real estate fund as well as European real estate fund.
Also, nearly $8.8 billion will be acquired by Blackstone in property loans. Further, Wells Fargo will get hold of the remaining $9 billion in loans along with partly financing Blackstone’s purchases.
Benefits of the Deal
With tightening regulations after the financial crisis, banks like Morgan Stanley MS economized their real estate investment operations. However, Blackstone started investing and building its real estate portfolio aggregating the assets under management to $80.9 billion as of Dec 31, 2014.
Prior to this deal, Blackstone successfully completed fundraising for its $14.5 billion flagship real estate fund reflecting its enhanced focus on the property market. On the other hand, the increased demand for commercial real estate helped General Electric wrap up a profitable deal. General Electric has been working to reduce its exposure to financing operations to operate as an industrial company.
In addition, the current deal will widen the commercial real estate presence in the global context for Wells Fargo, which is the leading commercial real estate lender in the U.S.
Blackstone previously purchased around $6 billion in assets from General Electric including office buildings and apartments. Moreover, GE Capital has acted as a chief financier of Blackstone's real estate contracts. Both Blackstone and General Electric have been said to be in talks since last month to acquire both equity and debt property assets of the latter.
Currently, Blackstone holds a Zacks Rank #2 (Buy), while Wells Fargo carries a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment