Blackstone Group (NYSE: BX), one of the largest investment firms in the world, is about to get a whole lot bigger. In early May 2021, the San Diego Tribune reported that Blackstone Group plans to acquire 66 residential apartments in San Diego County from the Conrad Prebys Foundation, a philanthropic foundation started by real estate mogul Conrad Prebys. This sale, which equates to a whopping $1 billion, one of the largest transactions in San Diego's history, will make Blackstone Group the largest landlord in the entire San Diego area, with a total of 5,800 units under management.
Blackstone was already one of the largest real estate holders in the globe, having earned $1.9 billion in revenues in Q1 2021 from real estate alone. But this acquisition, which brings Blackstones' total residential units under ownership in San Diego to 6,700, further affirms its position in the real estate industry. The purchase, which is being completed in partnership with TruAmerica, a private real estate investment company that owns 149 class B multifamily apartments.
Is this acquisition a good move for Blackstone?
Owning real estate in a singular market can pay off big by providing market control, but it can also create an element of risk. If the market were to suddenly turn -- as it did after the Great Recession or today with certain major metro markets, like New York -- being the largest multifamily operator could be a detriment. Thankfully, Blackstone's management team is extremely well versed in multifamily management and real estate as a whole, meaning it likely will be a positive addition to its monster-sized portfolio.
Positive sign for San Diego's affordable housing
Blackstone has stated it plans to allocate roughly $100 million to improving the properties, which currently charge market rent, and will work with local nonprofit Pacific Housing to provide services for residents, including after-school tutoring, financial literacy classes, and health and wellness programs to its residents in addition to adding amenities like outdoor space, gyms, and playgrounds. Blackstone has stated that it plans to keep the units affordable for the area, making the majority of the units available to those earning 80% or less of the median area income. Rental rates stalled in San Diego at the start of the pandemic, but they have quickly picked back up, making a 4.9% year-over-year increase. Low vacancy rates and high real estate means renting is far more affordable than owning, but rents still hover well above the national average, at $2,334 median rent.
The strong real estate market and improving global economic conditions have been a boon for Blackstone Group over the past year, achieving a 40% increase in free related earnings (FRE) year over year as of Q1 2021, and it's likely this acquisition will only add to the company's positive performance in the coming quarters.