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Private equity races for Reits

Driven by pension funds desperate to meet their investment allocations to real estate, private equity firms are buying up US real estate investment trusts as fast as they can. And with cheap and plentiful debt at their disposal, they’re happy to pay large premiums too. Kathryn Tully reports.

CAN THERE BE any doubts about the massive investor demand for US commercial property? Certainly not if one considers the activities of private equity firms, which are so desperate to get their hands on real estate assets that they are buying up real estate investment trusts like there’s no tomorrow.

This February, Blackstone Group announced that it was buying a large US hotel Reit, Meristar Hospitality Corporation, for $2.6 billion, Less than two weeks later, Blackstone said it was also acquiring office Reit CarrAmerica Realty Corp for $5.6 billion including debt and preferred stock. When completed, this will be the largest purchase of a Reit by a private fund for more than two years. It’s not stopping there. Jonathan Gray, senior managing director at Blackstone, says the firm is going to use the CarrAmerica purchase as a valuable platform for future investments in the office sector.

Blackstone likes to argue that this buying binge is nothing out of the ordinary. After all, it has had a dedicated real estate fund since 1992 and has done more than 150 real estate deals since then. Yet US stock market investors seem to have concluded that more than $8 billion-worth of Reit purchases by one private equity player in the space of a fortnight is pretty staggering.

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