Blackstone Making Big Retail Contrarian Bet

NEW YORK ( TheStreet) -- Blackstone ( BX) is making a big investment tied to the fate of big box outlets, cutting a joint deal to buy a $1.4 billion portfolio of 46 shopping centers that count TJX Companies ( TJX), Kohl's ( KSS), Bed Bath & Beyond ( BBBY), Best Buy ( BBY), PetSmart ( PETM) and Home Depot ( HD) as major tenants, among others.

The venture -- made with real estate investment trust DDR ( DDR) -- signals a vote of confidence in the growth of strong-performing big box stores by the world's largest private equity shop on a continued retail recovery as the sector moves on from the crisis.

"We are excited to purchase this portfolio, which is experiencing a rebound in occupancy as retailers expand their space into high quality community and power centers around the U.S.," says A.J. Agarwal a Blackstone senior managing director.

Power centers are open air shopping centers with large tenants like a Bed Bath & Beyond, in contrast to enclosed malls that house small stores in addition to national brands.

Agarwal expects the deal to capture a recovery in store rental prices as many large retailers execute store expansion plans. The top tenants within the centers being acquired are T.J. Maxx, Kohl's, PetSmart and Dicks Sporting Goods, respectively, and the portfolio includes outlets in the Chicago, Boston, Washington and Naples, Fla., according to Agarwal.

Blackstone will own a 95% stake in the venture through one of its real estate portfolio'. DDR - a large retail REIT -- will make a $150 million in preferred equity investment in the venture and will own the remaining 5% stake.

Like its big European debt bet that was initiated as the crisis across the Atlantic escalated, Blackstone may be looking at capturing an upswing in the retail sector as it hits bottom. Recently, Sears Holdings ( SHLD), The Gap ( GPS) and Best Buy have seen their shares fall after announcing less than forecast earnings and sales.

For more on retail stocks see Goldman Sachs's 2012 consumer stock best buys and 5 consumer stocks that may be stars in 2012.

Shopping center real estate investments could increase in value if expansion plans come up against a limited supply of store space after a post-crisis construction slowdown.

The Census Bureau said in January that non-residential construction spending grew less than 1% month-over-month after a 14 % recovery from a post-crisis bottom hit in Jan. 2011. Still, non-residential construction spending is 33% below peaks hit in Jan. 2008.

Blackstone declined to comment on the growth prospects on specific retailers in the portfolio of centers it's acquired.

In addition to this retail property purchase, Blackstone bought 600 U.S. shopping malls from debt laden Australian retail supermarkets and retail property owner Centro Properties in May.

The $9.4 billion deal was also one of the largest real estate acquisitions since the crisis and Blackstone's largest investment in 2011, according to data compiled by Bloomberg. Blackstone continued its supermarkets push in September with a $473 million purchase of 36 shopping centers from Equity One ( EQY).

In August 2010, Blackstone took an equity stake by injecting $500 million in then bankrupt mall giant General Growth Properties ( GGP), the owner of recognizable shopping malls like Boston's Faneuil Hall, the Glendale Galleria in Southern California and New York's South Street Seaport. General Growth sold shares in a public offering as it exited bankruptcy later that year.

Tuesday's deal, which is one of Blackstone's five biggest acquisitions in the last year, signals a diversification from its previous office space and hotels investments and towards a post-crisis supermarkets, malls and big box retail orient. Blackstone's biggest ever real estate deals include a $20 billion 2006 buyout of Equity Office Properties from Chicago billionaire Sam Zell and a $26 billion takeover of Hilton Hotels in 2007.

-- Written by Antoine Gara in New York

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