It’s official: The Blackstone Group raised the world’s largest-ever private real estate fund, totaling $15.8 billion. News of the fundraising broke in March, but it took several months to rake in all the cash. 

Twenty percent of the capital is already committed to projects, according to a press release. 

Blackstone’s real estate group, headed by Jonathan Gray, is the largest private U.S. landlord and the world’s largest private real estate fund manager. As of June 30, it had $92 billion in assets under management. 

In April, it bought GE Capital’s real estate portfolio for $26.5 billion in partnership with Wells Fargo and other investors, in a leveraged buyout using money from several Blackstone real estate funds. And last month, it dished out $3.9 billion for Strategic Hotels & Resorts, a deal that included Manhattan’s Essex House Hotel. 

The new fund, Blackstone Real Estate Partners VIII, is the firm’s latest global fund, succeeding the $13.3 billion Blackstone Real Estate Partners VII, which it raised in late 2012. Blackstone also manages two regional real estate funds – the $8.2 billion Blackstone Real Estate Partners Europe IV and the $5 billion Blackstone Real Estate Partners Asia.

A source close to Blackstone recently told The Real Deal that investor demand for its latest fund well exceeded $15.8 billion, but that raising more cash would have made it difficult to find profitable investments. Bloomberg reported that 90 percent of the funds came from institutions, such as pension funds and insurance companies. 

Fund managers generally pick target figures based both on investor demand and opportunities to spend. Recently, this has posed a dilemma: it has never been easier to raise money, and yet high-yield real estate assets are scarce amid growing competition for deals. Several fund managers have responded by entering new, less-crowded markets. Blackstone, for example, spent heavily on real estate in Southern Europe’s struggling economies. 

The size of Blackstone’s funds is a crucial advantage, allowing it to buy real estate in bulk and then potentially sell of individual assets for a profit. “How many other players could have done [the GE deal]?” Scott Rechler, head of real estate investment firm RXR Realty, recently told TRD. “Over time, they have gotten to a size and scale where they can do deals few others can.” 

Read the whole story at The Real Deal here



CHATTANOOGA, TN—In part two of this three-part series of redevelopment happening around the country, we chat with McCormick & Co./CORFAC International on one of its latest projects. Along with Noon Development, the firms are renovating and marketing the three “Fleetwood Coffee” buildings on East 11th Street into office, retail and multifamily units.

When complete, the 90,000 square feet will have two restaurants at the street level – about 6,000 square feet, 30,000 square feet of office space and the balance will be apartments and condominiums. The project is on the outer edge of the Central Business District and in an area of the city designated as an Innovation District, which is intended to draw entrepreneurs, tech startups and other creative-based businesses.

The original building of approximately 45,000 and five stories (Fleetwood Coffee) was constructed in 1906 and the two others were built shortly thereafter. The Bennett Hubbard Candy Building is about 21,000 square feet in three stories while The Albert Theatre Building is also three stories and about 24,000 square feet. The three buildings are connected in a contiguous row.

The combined property was originally used by a grocery wholesaler. Fleetwood Coffee took over the tallest building in 1929.

McCormick principal Gerald McCormick exclusively tells GlobeSt.com that the reason the redevelopment and conversion is viable now versus 15 years ago (when GlobeSt.com first launched) is that “in 2000 this area of town was basically an abandoned industrial area containing mostly empty buildings at a time when it was not fashionable to live in downtown Chattanooga.”

He explains that “It has only been in the last eight to 10 years that people have begun to move back downtown and that process has accelerated as the downtown amenities have followed such as restaurants and outdoor events.”

There is actually a housing shortage downtown now, he adds, “and that only creates more momentum for businesses and more housing.”

Another catalyst, he says, “has been public-private partnerships between local government and private business that has helped make downtown Chattanooga attractive for investment.”

Written by Natalie Dolce for GlobeSt.com. To read the full article on GlobeSt.com, click here

Chattanooga is enjoying a boom of office retail and hotel activity amid its urban renewal. 

By Gerald McCormick of McCormick & Co./CORFAC

Chattanooga is situated at aU-turn of the Tennessee Riveramidst forests and mountains,hence the community’s nickname,Scenic City. Two of Chattanooga’slargest employers are Volkswagen,which has a plant here, and Amazon,which runs a distribution center inthe city. Insurance firm Unum Group,a Fortune 500 Company founded in1848, is headquartered here and is oneof the larger occupiers of downtownoffice space. 

Long-known for its naturalresources and as a tourism destination,Chattanooga is experiencing a realestate boom fueled by urbanizationtrends and its proximity to Atlanta (2hours south) and Nashville (1.5 hoursnorthwest), as well as its growingrecognition as one of the South’s toptourism and entertainment venues. 

Key to the urban renewal is theconversion of dozens of properties —mostly from office uses to residential,retail or hotel uses. 

The combination of the GreatRecession and a 2009 move byBlueCross BlueShield into a new $229million downtown facility has led tothe relatively high vacancy rate of17.5 percent that persisted up untilearly 2014. Most of the 600,000 squarefeet of facilities vacated by BlueCrossBlueShield were not suitable formulti-tenanted office use and thespaces would have been difficult todivide. As such, the Gold Building isbeing converted to a hotel while theChestnut Building is being marketedas a data center. 

Chattanooga’s downtown officemarket was also negatively impactedby the 2010 downsizing by Cigna, aswell as the 2012 relocation to Atlantaby Krystal Corp. after it was acquiredby a firm the e. 

In other conversion examples, the50,000-square-foot Warehouse Rowoffice building was converted toretail/office use. The 121,000-squarefootChattanooga Bank Building(vacant for 10 years) is beingconverted to hotel use, and the294,830-square-foot State OfficeBuilding has been given to Universityof Tennessee-Chattanooga fordormitory use. Combined, more than800,000 square feet of offices in thedowntown, or about 15 percent of thetotal inventory that is not occupied byan owner/user, are being convertedto other uses. 

In a market with approximately 5.5million square feet of office inventory,the conversions are putting a dent inthe vacancy rate, which has fallen tounder 15 percent and is expected toslowly trend lower in the next fewyears. 

For another example ofrepositioning, McCormick & Co.Commercial Real Estate/CORFACInternational is renovating the threeFleetwood Coffee buildings on East11th Street. When complete, the90,000 square feet of space will havetwo restaurants at the street leveltotaling about 6,000 square feet;30,000 square feet of office space; andthe balance will be apartments andcondominiums. The project is on theouter edge of the central businessdistrict (CBD) and in an area of thecity designated as an InnovationDistrict, which is intended to drawentrepreneurs, tech startups andother creative businesses. 

We are also involved in a mixed userenovation of the three-story,65,000-square-foot Lifestyle buildingon Market Street in which the thirdfloor will remain medical offices,while the second floor was pre-leasedto Tech Town, which will bea center for children to learn abouttechnology. The first floor is going tobe a mix of retail, restaurants and amedical clinic. 

Class A office rents are commandingfrom $16 to $20 per square foottriple net, while B and C buildings,particularly those further away fromthe downtown, are going for $10 to$12 per square foot. 

Urban Living Driving Revival 

Chattanooga and HamiltonCounty are growing. The metroarea is surrounded by rural countiesand mid-sized towns includingCleveland, Tennessee and Dalton,Georgia. 

The U.S. Census Bureau’s mostrecent data (2013) pegged thepopulation within Chattanoogacity limits at 173,366 residents, a 2.7percent increase from the 2010 Censuswhen 167,674 people lived in thecity. The Chattanooga metropolitanstatistical area (MSA) is the 99thlargest in the United States, withmore than 500,000 residents. Peoplewant to live in the downtown for itsamenities, and Chattanooga is a greatwalking town. 

A January 2014 study by nationalhousing consultant Robert CharlesLesser Co. (RCLCO) indicated ashortage in excess of 3,000 residentialunits in the downtown corridor.Adding the 3,000 units with a mix ofconversion and new construction isexpecting to spur the developmentof 200,000 square feet of retail and150,000 to 200,000 square feet of newoffice space during this three- to fiveyear construction boom, according toRCLCO. 

The demand for downtown housingruns the gamut from apartments forservice-sector workers and youngsingles through couples, families andluxury-class product. Owners of theChattanooga Choo Choo, downtownChattanooga’s iconic, Beaux Arts designedformer train station turnedhotel, are converting one of its hotelbuildings with 97 rooms into 97apartment units, according to AdamKinsey, principal of development firmKinsey Probasco Hays (KPH). Kinseyis the project manager and visionarybehind the massive redevelopmentand renovation of the ChattanoogaChoo Choo. 

The Choo Choo’s new apartmentswill span 365 square feet withkitchenettes and asking rent of $750per unit, which includes all utilities.As of March 2015, the averageapartment rent within 10 miles ofChattanooga was $821, accordingto Rent Jungle. On the other end ofthe housing spectrum in downtownChattanooga, a 3,000-square-footupscale penthouse in a newer condobuilding recently sold for $1.6 million. 

Some of the demand for downtowncondos is being driven by second homebuyers, with many of themcoming from Atlanta and others fromas far away as Vail, Colorado, Kinseysaid. 

Kinsey added that there aretwo new apartment communitiesexpected to open soon, addingabout 400 apartment homes todowntown’s stock, and there areapproximately 2,000 apartments andcondos in various stages of planning,development and construction. 

Retail on the Rise 

With Chattanooga’s expanding population, growing reputation as a lifestyle choice and strong tourism trade, national brands are opening stores in the city. 

Warehouse Row recently landed J. Crew and Anthropologie as tenants. Ruth’s Chris Steak House opened a restaurant in Hamilton Place Mall. Lululemon has opened a test store on the north end of town and Bass Pro Shops is under construction in East Ridge, which is near the Georgia state line. 

In addition to national brands, Chattanooga is attracting regional restaurant operators, as well as local organic growth, in a thriving restaurant and bar town. Puckett’s Restaurant, a high-volume food and beverage operator out of Nashville, is expected to open a 6,800-square-foot location on Broad Street next to the Tennessee Aquarium this summer. 

Hotel, Entertainment Boom 

“We get approximately 3 million visitors annually and we see growth every year,” a spokeswoman for the Chattanooga Area Convention & Visitors Bureau (CVB) said. As of Dec. 31, 2014, the tourism industry had an estimated economic impact of $1 billion in Hamilton County, according to the CVB. Currently, the CVB estimates that there are 9,574 hotel rooms in Hamilton County. And that is about to change. 

In December last year, a group of Iowa investors closed on the $4.4 million purchase of the Chattanooga Bank Building, according to Kim White, president and CEO of the River City Co., a 30-year-old economic development entity in Chattanooga. The new owners plan to install a 160-room Aloft, a boutique hotel brand managed by Starwood Hotels & Resorts Worldwide. The Gold Building is being converted to a Westin hotel and conference facilities, while Holiday Inn & Suites is building a new 150-room hotel downtown. 

White added that local hospitality operator Mitch Patel and his company, Vision Hospitality, are building a much-needed, high-end boutique hotel. Vision plans to break ground this summer by demolishing a former dentist office located at 102 Walnut St. in the city’s art district. Adjacent to the Walnut Street Bridge, the five-story, 90-room hotel with a rooftop bar will have views of the Hunter Museum. 

Much of the hospitality boom can be directly attributed to Chattanooga’s growing music scene, the region’s popularity as an outdoor activities destination and its business-friendly reputation that is attracting industry and jobs to Hamilton County. 

Anchoring the music scene is the enormously successful Track 29 — a 1,700-seat club located within the Chattanooga Choo Choo compound. 

Acts big and small come right through town and many of them play here as part of their Southeast regional swing, according to White. 

Choo Choo Renovation 

The Chattanooga Choo Choo opened in 1909 as “Terminal Station” during the golden age of railroads in America. The central building has a magnificent dome, designed in the grand Beaux Arts style of neoclassical architecture that was taught by French universities for over two-and-a-half centuries and influential in the U.S. from 1880 to 1920. With the advance of America’s car culture, train travel lost its customer base and the Choo Choo was converted into a hotel in the 1970s. In 1988, Choo Choo Partners LP purchased the hotel out of bankruptcy. Since then, the partnership has managed the 25-acre property comprising 361 hotel rooms, 10 shops, four restaurants, three pools, tennis courts and formal gardens. 

Adam Kinsey said his goal in redeveloping the Choo Choo was to bring the tourists out of the hotel and the community into it, a reference that for many years hotel guests would get to the hotel and never leave. Conversely, the way the hotel owner in the 1970s closed off all the store fronts, installed drop ceilings in the main terminal and plastered over windows effectively blocked out people in the neighborhood from coming into the Choo Choo. 

Kinsey is changing all that by refurbishing the main, 70,000-square-foot terminal to its original grandeur. The renovation includes all new plumbing, electrical and other infrastructure needs to the hotel rooms. 

A new 500-seat entertainment venue called The Revelry Room is going into space formerly occupied by a skating rink. Comedy Catch, a popular club in Chattanooga for many years, is relocating from Brainerd Road to the Choo Choo as well. The Revelry Room is scheduled for 200 shows a year while the larger Track 29 is expected to host about 100 shows annually. 

Kinsey is also repositioning the 13,500-square-foot space that formerly served as the serving kitchen into three restaurants. Bluefish is a new restaurant that is opening in September, while two others are planned and will be announced at a later date. 

As noted earlier, 97 of the hotel rooms are being converted to apartments. The $8 million renovation is scheduled to be complete by the end of this year, at which time the Choo Choo will shift from being the largest hotel in Chattanooga to the second largest with 264 rooms.

To read the full article from CORFAC, click here