Blackstone Effect on Commercial Real Estate Sales
Commercial real estate is rising in the country partially because of a ripple being named the Blackstone Effect. When Blackstone purchased Equity Office Properties they immediately started selling off many of the properties. This put properties on the market that have not been out there for many years.
These properties are also being sold not on the basis of the worth of the buildings and grounds now, but on future rents that can be earned. The buyers are needing to see a faster return on their investment so in turn are having sticker shock when it is time to renew or sign a lease. The lease rates for Class A space in hot commercial markets like the San Francisco – San Jose corridor are skyrocketing. If the new owners are raising their rents to recapture their investment, other property owners are just as happy to raise their rents in tandem.
Del Beccaro calls it “the Blackstone effect,” named after the Blackstone Group purchased Equity Office Properties and sold it off piece by piece for a profit because of raised rents.
Previously buildings were sold because of their value; now buildings are being sold based on future rents that their owners will inevitably raise for better returns.
“Buildings that were never for sale now are, all of a sudden, on the market,” Del Beccaro said, mentioning that the number of buildings has grown in the market, with some calling it the highest they have seen in six years. “Now people are selling higher than makes sense today, but rents will rise high enough in two or three years and the rent roll will catch up to the price.” via the San Jose Mercury News
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