BlackRock is making strategic moves in the real estate credit sector by acquiring ElmTree Funds, a significant player in the net lease industrial space. This acquisition, announced on Monday, will see BlackRock exchange stock with ElmTree, which manages $7.3 billion in assets. While the specific financial details remain undisclosed, the deal includes five years of performance incentives that could increase the overall investment cost for BlackRock.
ElmTree CEO James Koman will continue to lead the firm following the transaction, which is set to close in the third quarter pending regulatory approval. Founded in 2011, ElmTree boasts six offices and investments across 122 properties in 31 states, specializing in build-to-suit industrial assets. Koman expressed confidence that this segment will drive ElmTree’s performance going forward.
This acquisition is part of BlackRock’s broader strategy to enhance its private financing solutions platform, which recently expanded following its purchase of HPS Investment Partners, an alternative credit provider. This new platform consolidates several of BlackRock’s private credit offerings, and with the inclusion of ElmTree, it now manages $190 billion in client assets.
Koman highlighted the robustness of the net lease market, estimated at around $1 trillion, and underscored the importance of the industrial build-to-suit model due to its critical role in serving the economy. The partnership with HPS is expected to further enhance ElmTree’s capabilities in providing financing solutions.
Investors are optimistic about the net-leased assets sector, especially given recent trends indicating a resurgence in investments in early 2025. CBRE predicts that continuing high Treasury bond prices will bolster the attraction of this market.
ElmTree’s shareholders will receive BlackRock shares as part of the deal, with an earnout structure intended to align interests between BlackRock and ElmTree leadership. Despite BlackRock’s stock remaining stagnant amid broader market conditions, there is a sense of positive momentum in private markets, as highlighted by CEO Larry Fink’s remarks on their first-quarter earnings call. He pointed out that the current macroeconomic uncertainties are driving an increase in demand for private credit, offering insight into potential future growth in this sector.
Overall, this acquisition signifies BlackRock’s commitment to expanding its influence in the real estate credit space, which could lead to fruitful opportunities for both companies amid a shifting economic landscape.