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November 20, 2006

Blackstone places $36 billion bet on real estate

Steve Rosenbush

Blackstone Group, the private equity giant, is placing a huge bet on commercial real estate by acquiring Sam Zell's Equity Office Properties Trust. The deal is on track to pass this year's $33 billion HCA hospital buyout as the largest leveraged buyout ever. It's worth $36 billion, including the assumption of $16 billion of debt.

The deal is a bold vote of confidence in the economy. The fortunes of Equity Office, the largest office building landlord, are tied to the outlook for white-collar employment. That outlook is vulnerable to any number risks, from geopolitical trouble to uncertain outlooks for interest rates, energy prices and housing. Housing starts fell nearly 15% in October, to the lowest level since July 2000. link.

Just how strong is the economy? Pretty strong, according to the latest report from Action Economics. "Strong income growth, a low unemployment rate, falling gasoline prices, booming equity markets, and surging consumer confidence have established a solid fundamental backdrop," the economic researcher said on Monday. If they are correct, Blackstone's bet on the office building market could turn out to be a good one.

02:23 PM


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