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A mix of celebrities, politicians and financiers were out in force on the first full day of the Milken Institute Global Conference in Los Angeles.

The hot ticket: Elon Musk’s conversation with Michael Milken. The big topics: how private equity can return capital to investors as deal making dries up, and the sale of Paramount, DealBook’s Lauren Hirsch reports from the event.

Everyone wanted to hear from Musk. Days after a quick and unexpected trip to China, Tesla’s C.E.O. chatted about a range of topics, including artificial intelligence, space, regulation and what keeps him up at night (“Civilizational risks” like falling birthrates, he said).

Dozens of attendees lined up to see the panel, forcing others to settle for an overflow room — which also filled up.

Everyone in private equity is talking about “D.P.I.” Short for “distribution to paid-in capital,” which tracks a fund’s returns to its investors, the discussion reflects how industry executives are trying to get money back to their investors, after raising record amounts of funds. Among the options: selling a partial stake or taking out loans against their funds’ net asset value.

Blackstone Inc.’s battered real estate trust appears to be in comeback mode. Commercial real estate has been the bête noire of investing for the past couple of years, and Blackstone Real Estate Income Trust took its lumps in 2023, with its main investment class losing 0.5% and lots of investors exiting.

The worst appears to be over for commercial property, with some possible exceptions such as offices. As investment manager Wilmington Trust stated in a recent research report, “fundamentals remain strong” in many CRE segments, such as industrial and multifamily, and expected lower interest rates and the absence of a recession should bring the start of a recovery in 2024’s second half.

For BREIT (assets: $61 billion), as the Blackstone trust is known, “we’ve seen a bottoming out, and in 2024, the clouds will part,” Blackstone’s global co-head of real estate, Nadeem Meghji, told shareholders last month, pointing to the anticipated rate cuts. BREIT has seen a slowing of redemption requests so that it no longer has to cap them at 2% of the fund’s net asset value monthly.

One sign of health, or at least optimism, is making an acquisition. Amid tough times for real estate, BREIT recently announced it was buying a single-family rental company, Tricon Residential, for $3.5 billion. Also, in December 2023, BREIT agreed to buy 20% of a facility that holds a $16.8 billion senior mortgage loan portfolio, formerly owned by failed Signature Bank. This $1.2 billion investment, made in partnership with the Canada Pension Plan Investment Board and Rialto Capital, is a joint venture with the Federal Deposit Insurance Corp., which seized Signature’s assets.

An early vote of confidence in BREIT came in January 2023 at the height of redemptions when UC Investments, which manages the University of California’s endowment, announced a $4 billion investment in the fund. “In the current environment, investors can benefit from stable cash-flowing investments that can grow with high global inflation,” Jagdeep Singh Bachher, the University of California’s CIO, said in a statement. “We consider BREIT to be one of the best-positioned, large-scale real estate portfolios in the U.S.”

BREIT is a non-public REIT, meaning it is not exchange-traded. The upside for the fund is that investor withdrawals are limited, so the trust cannot suffer a massive capital outflow all at once—an advantage that has served it well as commercial property buckled under rising mortgage rates and mounting recession fears, along with the post-pandemic change in work habits. But now the Federal Reserve is openly talking about reversing its rate hikes, and economists no longer consider a recession a certainty.

Since its launch in 2017, BREIT has done well, rising 12% annually, close to the increase in the S&P 500 over the period and (per Blackstone) more than double the return of private REITs overall. BREIT started out strong, yet faded once the Fed began escalating rates in 2022: It returned 30% in 2021 and 8.4% in 2022.

Blackstone touts BREIT’s asset allocation as a major plus going forward. It has only 3% in offices, the most troubled CRE sector, given the work-from-home mentality that has taken root thanks to the pandemic.

The fund has 25% in apartments and an identical share in the industrial sector — mostly in warehouses, but also in factories. Demand should be solid for apartments, according to CBRE, the real estate services and investment firm. Reason: a shortage of single-family homes, which has led to an affordability issue for many people. While the pandemic-driven boom in warehouses has faded, CBRE still sees a strong future for industrials because of the ongoing onshoring of manufacturing.

Another factor favoring BREIT is that most of the fund’s holdings are in the Sun Belt, which is growing faster than the rest of the country, said Meghji. He added, “This is a great time to deploy capital.”

The firm has also promoted Gio Cutaia to be global chief operating officer of real estate. He will continue to lead global real estate asset management, a role he has held since 2018, and in that capacity helps manage the over 12,000 assets in Blackstone’s real estate portfolio.

Kathleen McCarthy, global co-head, real estate, said in a statement: “Nadeem is the perfect leader to succeed Ken, given his tremendous investment acumen and operational experience. I am excited to partner with him in the years ahead. Nadeem and I are thrilled to elevate Gio Cutaia, who will play a critical role helping us oversee this world-class business.”

CIOs across Blackstone will continue to report into their respective business units. Prakash Melwani, CIO of corporate private equity, will have an expanded role as chairman of Blackstone Capital Partners International.

Blackstone has been notably bullish recently about its commitment to real estate and the sectors it is targeting.

As reported by CoStar in a recent report on private equity funds readying major war chests to spend into a recovering market, Jon Gray, Blackstone's president, hinted at a potential spending spree in the company's third-quarter earnings call.

“Ultimately, there will be real estate to buy and real estate to sell, and with our $66 billion of dry powder, I think we're going to be in a really unique position,” Gray said. “I mean, we raised this $30 billion-plus global fund. I think we've invested less than 5% of that fund today. We have the vast majority of our Asia fund uninvested, and our Europe fund we're just raising, so by definition is uninvested. So, we think we're well-positioned in this environment, particularly if banks pull back and there are liquidity shortfalls.”

At its second quarter earnings it confirmed Europe and in particular logistics were among its favoured real estate target investments.

In April, Blackstone Group said the final close of its latest global real estate fund, Blackstone Real Estate Partners X, with $30.4 billion of total capital commitments, was the largest real estate or private equity drawdown fund raised on record.

The property owner added then that its three opportunistic strategies, global, Asia and Europe, had over $50 billion of capital commitments. With the large influx of capital, Blackstone has stated on multiple occasions it intends to invest less in traditional property sectors, such as retail or office, which have been hit by the remote working trend.

Blackstone is readying for another massive global investment drive, including real estate, with a series of promotions and leadership changes at the major commercial property owner.

The private equity giant has promoted Ken Caplan, global co-head of real estate, and Lionel Assant, European head of private equity, to newly created roles as global co-chief investment officers.

Nadeem Meghji, head of real estate Americas, will succeed Caplan as global co-head of real estate alongside current global co-head Kathleen McCarthy.

Blackstone said the promotions "underscored the increasing breadth of its investment strategies and continued expansion", having recently surpassed $1 trillion in assets under management. It said the three executives have more than 60 years of collective experience investing for Blackstone and would lead an extremely active period of investment, with over $200 billion to spend.

Steve Schwarzman, co-founder, chairman and CEO of Blackstone, said the promotions readied the business for major investment. "They bring strong track records of delivering for our customers, considerable institutional knowledge, and exceptional investment acumen to these new roles.”

Assant joined Blackstone in 2003 and has run the firm’s European private equity business based in London since 2012. He will continue to serve in that capacity and, as co-CIO of Blackstone, work in conjunction with the business unit CIOs and group heads to provide additional investment oversight across its private equity complex, including its corporate PE, infrastructure, tactical opportunities, growth and life sciences businesses.

Meghji joined Blackstone Real Estate in 2008 and since 2017 has overseen its real estate business in the Americas. He has helped oversee the growth of Blackstone’s US and Canadian real estate business across its opportunistic (BREP), institutional and private wealth core-plus (BPP and BREIT) strategies, with over $200 billion of AUM and total asset value of $400 billion.

Blackstone Remains Committed to Tricon’s Development Platform, including $1 Billion Pipeline of New Single-Family Homes in the U.S. and $2.5 Billion Pipeline of New Apartments in Canada; Plans to Improve Quality of Existing U.S. Single-Family Homes through an Additional $1 Billion of Capital Projects

All financial and share price-related information is presented in U.S. dollars unless otherwise indicated.

NEW YORK & TORONTO, May 01, 2024--(BUSINESS WIRE)--Blackstone (NYSE: BX) and Tricon Residential Inc. (NYSE: TCN, TSX: TCN) ("Tricon" or the "Company") today announced the closing of the previously-announced statutory plan of arrangement under the Business Corporations Act (Ontario) pursuant to which Blackstone Real Estate Partners X ("BREP X"), together with Blackstone Real Estate Income Trust, Inc. ("BREIT"), acquired all of the outstanding common shares of Tricon ("Common Shares") for $11.25 per Common Share in cash (the "Transaction") for a total equity transaction value of $3.5 billion. BREIT will maintain its approximately 11.6% ownership stake post-closing.

This transaction marks an exciting new chapter in Tricon’s history, one poised to deliver exceptional outcomes for our residents," said Gary Berman, President & CEO of Tricon. "In partnership with Blackstone, we have the capital and expertise to take our business to the next level, including growing our Canadian multi-family development platform that is providing much needed market rate and affordable housing supply. In the U.S., we will continue to help hard-working American families access quality single-family homes and good schools in desirable neighborhoods, and our commitment to genuine, caring customer service remains unwavering."

Nadeem Meghji, Global Co-Head of Blackstone Real Estate, said, "We are thrilled to expand our partnership with Tricon and look forward to working with Gary and his team to grow the business, deliver additional high-quality apartment supply in Canada and single-family supply in the U.S., and continue Tricon’s track record of delivering a leading resident experience."

The Common Shares are expected to be de-listed from the New York Stock Exchange on or about the opening of trading on May 2, 2024 and from the Toronto Stock Exchange on or about the closing of trading on May 2, 2024. It is anticipated that Tricon will apply to cease to be a reporting issuer under applicable Canadian securities laws and will deregister the Common Shares under the U.S. Securities Exchange Act of 1934, as amended.

For more information about the Transaction, please see the management information circular of the Company dated February 15, 2024 (the "Circular") prepared in connection with the Transaction, and the Company’s subsequent related news releases, all of which are available on the SEDAR+ profile of Tricon at www.sedarplus.ca and Tricon’s filings with the SEC, including the Schedule 13E-3, which includes the Circular, on www.sec.gov.

The Company made a Return of Capital Distribution (as defined in the Circular) of approximately $3.10 per Common Share prior to the completion of the Transaction, representing approximately 28% of the total per Common Share consideration paid in connection with the Transaction, which, together with the Common Share Acquisition Price (as defined in the Circular) of $8.15, represents the $11.25 total consideration paid per Common Share to each shareholder of the Company (other than BREIT) in connection with the Transaction. Please see the Circular for a discussion of certain Canadian and U.S. federal income tax considerations relating to the Transaction.

Enclosed with the Circular was a letter of transmittal explaining how registered shareholders of the Company can submit their Common Shares in order to receive the consideration to which they are entitled in connection with the Transaction. Registered shareholders who have questions on how to complete the letter of transmittal should direct their questions to the Company’s transfer agent and depositary, TSX Trust, at 1-866-600-5869 (toll- free within North America) or at 416-342-1091 (outside of North America) or by email at txstis@tmx.com. Beneficial shareholders holding Common Shares that are registered in the name of an intermediary must contact their broker or other intermediary to submit their instructions with respect to the Transaction and to arrange for the surrender of their Common Shares in order to receive the consideration to which they are entitled in connection with the Transaction.

Advisors

Morgan Stanley & Co. LLC and RBC Capital Markets acted as financial advisors to Tricon. Scotiabank acted as independent financial advisor and independent valuator to the special committee of the board of directors of Tricon formed to evaluate the Transaction (the "Special Committee").

Goodmans LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP acted as legal counsel to Tricon in connection with the Transaction and Osler, Hoskin & Harcourt LLP acted as independent legal counsel to the Special Committee.

BofA Securities, Wells Fargo, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, PJT Partners, TD Securities and Desjardins Capital Markets acted as Blackstone’s financial advisors and Simpson Thacher & Bartlett LLP and Davies Ward Phillips & Vineberg LLP acted as legal counsel.

About Tricon Residential Inc.

Tricon Residential Inc. (NYSE: TCN, TSX: TCN) is an owner, operator and developer of a growing portfolio of approximately 38,000 single-family rental homes in the U.S. Sun Belt and multi-family apartments in Toronto, Canada. Our commitment to enriching the lives of our employees, residents and local communities underpins Tricon’s culture and business philosophy. We provide high-quality rental housing options for families across the United States and in Toronto, Canada through our technology-enabled operating platform and dedicated on-the-ground operating teams. Our development programs are also delivering thousands of new rental homes and apartments as part of our commitment to help solve the housing supply shortage. At Tricon, we imagine a world where housing unlocks life’s potential. For more information, visit www.triconresidential.com.

About Blackstone

Blackstone is the world’s largest alternative asset manager. We seek to deliver compelling returns for institutional and individual investors by strengthening the companies in which we invest. Our more than $1 trillion in assets under management include global investment strategies focused on real estate, private equity, infrastructure, life sciences, growth equity, credit, real assets, secondaries and hedge funds. Further information is available at www.blackstone.com. Follow @blackstone on LinkedIn, X (Twitter), and Instagram.

Additional Early Warning Disclosure

BREIT, which made an initial $240 million exchangeable preferred equity investment in Tricon in 2020 and is maintaining its ownership stake, entered into a support agreement whereby it agreed to vote its Common Shares in favor of the Transaction. Immediately prior to the closing of the Transaction, BREIT indirectly held 35,210,634 Common Shares, representing an aggregate of approximately 11.6% of the then-outstanding Common Shares. Following the closing of the Transaction, Creedence Acquisition ULC (the "Purchaser"), a special purpose vehicle formed by BREP X to effect the Transaction, owns 100% of the outstanding Common Shares. Tricon is now a wholly-owned subsidiary of the Purchaser and BREIT will maintain an indirect ownership interest in Tricon. The consideration of $11.25 per Common Share received by shareholders (other than BREIT) represents approximately C$15.46 per Common Share based on the CAD-USD exchange rate published by the Bank of Canada on April 30, 2024. An early warning report with additional information in respect of the foregoing matters will be filed and made available on SEDAR+ at www.sedarplus.ca under Tricon’s profile or may be obtained directly upon request by contacting the Blackstone contact person named below. The head offices of the Purchaser, BREP X and BREIT are located at 345 Park Avenue, New York, New York 10154. The head office of Tricon is located at 7 St. Thomas Street, Suite 801, Toronto, Ontario M5S 2B7.

Blackstone Real Estate Income Trust, known as BREIT, on Thursday said it was selling a portfolio of 19 student housing properties to funds managed by private equity giant KKR for close to $1.64 billion. BREIT originally acquired the student housing portfolio in 2018.

Meanwhile, BREIT also recently told investors it was able to meet client redemptions in February and March for the first time since late in 2022, according to the Wall Street Journal. Spooked by high interest rates and a moribund market for office real estate, BREIT investors started pulling money from the fund 18 months ago.

BREIT had $60.7 billion in assets at the end of last year.

Blackstone has been dong a bit of wheeling and dealing. Earlier this month, it said it was buying Apartment Income REIT through its global real estate fund, Blackstone Real Estate Partners, and not through BREIT, for $10 billion in cash.

“It looks like a lot of various, large institutions with lots of cash are buying properties opportunistically, and with one hand they’re selling to raise cash to buy with the other,” said Brian King, CEO of Lodas Markets.

Many of these institutions and funds bought properties using floating rate debt and want to refinance, but interest rates are high,” King said. “That’s creating a lot of stress, particularly for smaller real estate funds and sponsors, and causing them to sell. And it’s very unlikely interest rates are going to go down any time soon.”

“I know that certain people in commercial real estate marketplace think that prices are at the bottom but we don’t think that’s the case,” said James Corl, head of private real estate at Cohen & Steers. “The point of maximum uncertainty was fourth quarter last year but we still think prices are going lower. Interest rates aren’t going down anytime soon.”

2024 has been tough going for REITs, with nontraded REITs are having a difficult time raising cash from clients.

Blackstone also says that its portfolio of real estate assets is of a higher quality than its competitors, and includes high-growth sectors such as data centers and student housing.

To underscore that point, Blackstone noted that it had sold assets for higher values, including stakes in two Las Vegas casinos, self-storage warehouses and most recently student housing — all at a profit.

The fund also hasn’t meaningfully sold assets in the biggest part of its portfolio, apartment buildings and industrial facilities, according to Matthew Werner, a managing director of REIT strategies at Chilton Capital Management, an asset management firm. (Blackstone has said BREIT’s properties in those sectors are performing well.)

Wall Street is split on Blackstone’s approach. Craig McCann, the president of the financial consulting firm SLCG Economic Consulting who has written several blog posts criticizing the fund, said flatly, “We think there’s something wrong.”

Others are more sanguine. Kevin Gannon, the C.E.O. of Robert A. Stanger, an investment bank that tracks REITs, told DealBook that while his firm has regularly observed that BREIT’s valuations have topped its peers, its calculations appear in line with broader industry trends.

“We don’t find fault with the N.A.V.,” Gannon said. “Would I be overly concerned? No.”

But BREIT may be tested in the next year. The fund has already survived a huge blow: Starting in late 2022, worried investors began to demand their money back. Because of how BREIT is structured, Blackstone was able to return that cash gradually, a way to avoid a torrent of outflows that would force the fund to sell assets at cut-rate prices.

The firm’s leaders acknowledge that investors are worried about the commercial real estate sector. Indeed, other REITs also saw redemptions, according to Gannon.

Blackstone has said that BREIT is a big part of its future. The real estate fund has both added to the firm’s assets — which now total more than $1 trillion — and contributed $839.9 million in net management and advisory fees last year alone. The fund’s success has been a factor in Blackstone’s ascendant stock price: Shares in Blackstone have tripled in the past five years, closing on Monday at $121.22.

Analysts and investors are watching with great interest because Blackstone is rolling out a new, similarly designed fund that invests in private equity assets. If successful, it could pave the way for even more funds to follow the BREIT formula.