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In big hotel deals, Blackstone is a buyer and a seller

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In big hotel deals, Blackstone is a buyer and a seller

Blackstone Group LP's winning bid to acquire LaSalle Hotel Properties serves as a reminder of the private equity giant's omnipresence as a real estate investor, but offers only hints about its broader strategy because it is involved in so many real estate transactions on multiple platforms, observers say.

The LaSalle deal, the latest in Blackstone's yearslong string of real estate investment trust acquisitions, came as Blackstone was moving to exit another high-profile hotel investment in the brand company Hilton Worldwide Holdings Inc. Blackstone also partially monetized its 29.97% investment in La Quinta Holdings Inc. when that company sold its brand operations to Wyndham Worldwide Corp. after spinning its real estate into a publicly traded REIT.

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Blackstone has multiple vehicles through which it acquires real estate properties and companies. The fund that is buying LaSalle, Blackstone Real Estate Partners VIII LP, closed in 2015 after raising $15.8 billion. Among other platforms, the firm also has a core-plus real estate business, which had roughly $27.0 billion of assets under management as of the end of 2017 and targets assets in gateway cities with modest risk profiles, longer hold periods and significant income components. A Blackstone-sponsored nontraded REIT, Blackstone Real Estate Income Trust Inc., raised more than $1.8 billion, largely from retail investors, in 2017 and owned 272 properties, including 10 hotels, as of March 31.The firm remains a major investor in the spinoff CorePoint Lodging Inc. It also, for the last five years, has owned a portfolio of more than 50 upscale, extended-stay and select-service hotels through an affiliate, BRE Select Hotels Corp., that acquired Apple REIT Six in 2013.

Teague Hunter, president of Hunter Hotel Advisors, a property brokerage that has worked on transactions with Blackstone, said he believes the firm is selling more lodging investments, on balance, than it is buying. In particular he cited the Hilton and La Quinta transactions, plus continued sales of some properties from the firm's portfolio.

Hunter said that, in general, large owners of hotels may be looking to exit investments, in part because of a feeling that hotel-market fundamentals may be nearing a peak. Property transactions were up roughly 30% sequentially in the first quarter, he said. Moreover, Hunter said an abundance of potential hotel buyers attending the first large conference of 2018, in January, may have convinced more owners to bring their properties to the market.

Still, Hunter said Blackstone can be difficult to predict.

"I think they will be greater sellers than they will be buyers, but you never know," he said. "They've got long tentacles, tons of money, they're in all kinds of different areas of the business, so they're hard to pin down."

A Blackstone representative did not respond to requests for comment. On an earnings conference call in April, the firm's president and COO, Jonathan Gray, said the key to Blackstone's real estate investments outperforming in a rising-rate environment has been selectivity.

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"As you think about investing, you don't just buy the market when you're us," he said. "You buy teams you truly believe in."

In the news release announcing the LaSalle transaction, Blackstone's head of U.S. real estate transactions, Tyler Henritze, emphasized that LaSalle has what he called a high-quality, urban portfolio. LaSalle's board accepted Blackstone's all-cash bid after contacting 20 potential buyers — including strategic parties, private equity firms and brand companies — and executed confidentiality agreements with 10 of them.

Evercore ISI analyst Rich Hightower said in an interview that for REIT management teams whose companies' stock is trading below net asset value, Blackstone seemingly is always waiting nearby to make a buyout offer.

"It's a classic part of the REIT playbook," he said.

As for whether the firm is moving into or out of hotels, "I think net buyer, net seller is kind of a meaningless term with respect to Blackstone specifically," he said, "because they're always buying, they're always selling."

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