Prologis acquires $3.1B Blackstone portfolio as industrial market cools

Dive Brief:

  • Prologis, a San Francisco-based real estate investment trust, announced Monday that it acquired nearly 14 million square feet of industrial properties from New York City-based Blackstone, one of the world’s largest investment management companies, in a $3.1 billion deal.
  • The acquisition price, funded by cash, represents an approximately 4% cap rate in the first year and a 5.75% cap rate when adjusting to today’s market rents, according to a company press release.
  • A Prologis spokesperson told Construction Dive that despite an overall cooldown in the industrial market, historic low vacancy still defines logistic market conditions.

Dive Insight:

A cooling industrial market didn’t deter the world’s largest industrial property company from making the $3.1 billion deal. The Blackstone industrial portfolio acquisition expands the company’s presence in key markets, including:

  • Atlanta.
  • Baltimore.
  • Washington, D.C. 
  • Southern California.
  • San Francisco.
  • Dallas.
  • Las Vegas. 
  • New York. 
  • New Jersey.
  • Phoenix.
  • South Florida.

Prologis now plans to hold 100% of the acquired properties, which fit “perfectly” into its portfolio and long-term strategic plan for growth, according to the company. Its 1.2 billion-square-foot portfolio of logistics real estate now stretches into 19 countries. 

Yet demand for industrial space tumbled 40% in the first quarter of 2023, according to the latest industrial research from Newmark, a New York City-based commercial real estate advisory firm.

The REIT reported during its last earnings call that approximately 99% of the units across its 1.2 billion-square-foot portfolio are either leased or in negotiation, further underscoring the tightness of industrial markets. Prologis also shared that higher interest rates could make new developments harder to pencil for some companies, which could keep a lid on supply.

New construction starts in the industrial sector plunged 38% year over year, according to Newmark. Kyle Roberts, executive managing director at Newmark, expects to see substantially less product delivered starting midway through 2024 due to tightened credit conditions.

Nevertheless, Roberts agrees that markets with attractive consolidation environments, like manufacturing hubs, will still boast strong demand at or slightly below peak cyclical demand. For example, Prologis pegs that for every $1 billion invested in Mexican factories, that will generate about 5 to 10 million square feet in local logistics demand, according to a recent Prologis research report.

The transaction is currently expected to close by the end of the second quarter, according to Prologis.

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