BX Blackstone Inc

By Art Patnaude 

Blackstone Group LP is gearing up to unload its European warehouse property arm in a bet investors will buy into the rise of internet shopping.

The U.S. private-equity giant has been working simultaneously toward a sale or initial public offering for Logicor, which it created in 2012 to operate industrial properties it owns across Europe.

Either route is likely to result in a deal of more than EUR10 billion ($10.8 billion), people familiar with the processes said, potentially making it one of the biggest real-estate transactions ever in Europe.

Warehouses have become vital holdings for companies that sell goods online. High-tech distribution centers are crucial for businesses offering home deliveries, such as retailers like Amazon.com Inc. or logistics firms like DHL Worldwide Express Inc.

Blackstone has been building up its portfolio at Logicor, which operates more than 630 properties in Europe, into one of the region's biggest.

As demand for warehouse space grows, investors are piling into the sector. European logistics investment volumes hit a record EUR12.9 billion in 2016, rising from EUR12 billion in 2015, according to Real Capital Analytics. Overall commercial-property transactions in Europe were EUR274 billion in 2016, down 15% from the year earlier.

In one of the biggest real-estate deals in Europe last year, GIC Pte., Singapore's sovereign-wealth fund, bought P3 Logistic Parks for EUR2.4 billion from private-equity firm TPG Capital and Ivanhoé Cambridge, the property arm of Quebec's state pension fund.

"There's a growing acceptance that e-commerce is part of all our lives," said Jack Cox, head of industrial and logistics capital markets at property broker CBRE.

For years, Logicor's management made clear that a sale or IPO were Blackstone's two eventual exit strategies.

But plans have been picking up pace, and a deal is widely expected this year, people familiar with both possible routes say.

A direct sale of Logicor could be preferred to an IPO because of uncertainty over how long it would take Blackstone to sell its whole stake, experts said. Blackstone will market the direct sale for around EUR13 billion, people familiar with the sale process said.

Blackstone embarked on a similar push in the U.S. in 2010 with its IndCor Properties business. It sold IndCor to GIC for $8.1 billion in late 2014.

Should Blackstone take the IPO route for Logicor, the fourth quarter of this year looks likely, a person familiar with the process said.

Blackstone isn't completely turning away from European warehouses. U.K. real-estate investment trust Hansteen Holdings on Monday said it was selling industrial-property portfolios to Blackstone and M7 Real Estate for EUR1.28 billion.

And Logicor isn't the only major industrial-property platform up for sale. Global Logistic Properties, whose shares are listed in Singapore, last month said it had received several offers. GLP, which is backed by GIC, operates warehouse real estate in China, Japan, the U.S. and Brazil.

Industrial property has been a hot ticket lately, but demand for commercial property in general has been rising. Returns on real estate look attractive compared with other asset classes like bonds because of ultralow interest rates at global central banks.

With demand surging, investors have increasingly moved from traditional property sectors like offices or shopping malls into formerly niche areas that offer higher returns, such as student housing and care homes.

Warehouses have become a mainstream property sector, but the returns are still better than offices. The average capitalization rate -- a measure of yield -- for European industrial properties was 6.4% in the fourth quarter last year, compared with 5.8% for office properties, according to Real Capital Analytics.

While industrial property yields have fallen in recent months, "there is further room for compression over the next two years," according to a recent report from Deutsche Asset Management.

Industrial property "is an asset class we strongly believe in due to the benefits from e-commerce," said Isabelle Scemama, chief executive at AXA Investment Managers -- Real Assets, an arm of French insurer AXA SA.

Write to Art Patnaude at art.patnaude@wsj.com

(END) Dow Jones Newswires

March 21, 2017 07:14 ET (11:14 GMT)

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