The Blackstone Group LP, the biggest landlord in the country with tens of thousands of residential units, is investing in Oakland, becoming the largest real estate player yet to arrive in the burgeoning city.
New York-based Blackstone (NYSE:BX) is partnering with Los Angeles developer CityView on a 435-unit residential and retail project at 3093 Broadway, according to three real estate industry sources. Financial terms weren’t disclosed.
The seven-story project was entitled in December as part of the city’s Broadway-Valdez District Specific Plan, which calls for mixed-use development in the area north of the 19th St. BART station, mostly occupied by auto dealerships. The plan anticipates 3.7 million square feet of new development over the next 25 years, including 1,800 residential units and 4,500 new jobs.
Blackstone previously worked with CityView on the $150 million Barker Block project in Los Angeles, an 80-year-old warehouse that became the first new for-sale homes completed in the city after the 2008 downturn. CityView was founded by former U.S. Department of Housing and Urban Development chief Henry Cisneros, who is the company’s chairman.
A spokesman for CityView declined to comment. Blackstone spokesmanPeter Rose said in an email that it was “too early to comment.” CityView’s previous partners, Mill Valley-based Thompson Dorfman Partners LLC and Oakland’s srmErnst, are no longer involved in the Oakland project, said an industry source. Representatives of Thompson Dorfman and srmErnst didn’t respond to requests for comment.
The development site, bounded by Broadway, Hawthorne Avenue and Webster Street, was a former Bay City Chevrolet. Plans filed with City Planning call for 660,000 square feet of residential space and 24,000 square feet of retail, along with 621 parking spaces and 266 bike spaces. City documents said CityView plans to preserve one of the car showroom spaces through an adaptive reuse. Construction will take around two years. VTBS Architects is designing the project.
The project is adjacent to a 36,000-square-foot retail project called the Shops at Broadway. A Sprouts grocery store has leased about two-thirds of the space and is set to open in January 2016. Developer Portfolio Development Partners LLC is in talks with retailers to fill the remaining 10,000 square feet.
Jeffrey Neustadt, co-founder of Portfolio Development Partners, expects Blackstone and CityView’s project to be a boon for the area. “We’re excited by it,” he said. “It’s a lot of people. It’s good for the whole neighborhood.”
Blackstone isn’t the first company with a global presence to look at Oakland since the recession, but it is the biggest. The private equity firm Colony Capital bought hundreds of distressed East Bay homes and is also an investor in Coliseum City and the Claremont Hotel in Oakland. Real estate investment trust United Dominion Realty (NYSE: UDR) is partnering with UrbanCore Inc. to develop a controversial market-rate tower near Lake Merritt.
Oakland is attracting a new wave of developers, including some who have never even visited the city. When they see the liveliness of the Uptown neighborhood and beauty of Lake Merritt, their perceptions shift, said an industry source who has given tours.
“People under 35 appreciate Oakland immediately. The senior partners usually take some time to get over their previous assumptions, not to say prejudices, about Oakland, but after they see it in person, a switch goes off and they start to get it,” said the source.
Oakland still faces challenges. A peaceful daytime protest on May 1 turned violent after people smashed windows and cars in the same area where Blackstone’s project is located. Mayor Libby Schaaf said the city would restrict protesters to sidewalks at night instead of the street, a move thatled to its own backlash last week. The city is also scheduled to complete astudy at the end of the year on developer impact fees, which may discourage investors.
Blackstone and its real estate subsidiary, Blackstone Mortgage Trust (NYSE: BXMT), became a property powerhouse under the direction of global head of real estate Jonathan Gray, who joined the firm in 1992 after graduating from the University of Pennsylvania. Gray orchestrated the $39 billion purchase of Equity Office Properties and $26 billion buyout of Hilton Worldwide Holdings Inc. just before the 2008 crash, two of the biggest leveraged buyouts in history.
In the past year, Blackstone has been on a real estate buying spree as institutional investors fueled a $14.5 billion real estate fund. Blackstone is in contract to buy Chicago’s Willis Tower, the second-tallest building in the United States, for $1.3 billion. In April, it agreed to pay a total of roughly $14 billion for GE Capital (NYSE: GE)’s global real estate portfolio. Last July, Blackstone paid $600 million for a 49 percent interest in the 1.6 million-square-foot office tower One Market Plaza in San Francisco.
Gray, who rarely speaks to the media, is reportedly a top candidate to succeed Blackstone President Hamilton “Tony” James and could eventually be the heir to CEO Steve Schwarzman, demonstrating the clout of Blackstone’s real estate division, which earned $2.2 billion over the company’s past four quarters.
written by Roland Li