Pedestrians cross the road in view of the 22 Bishopsgate office tower construction project in the City of London, U.K., on Friday, Aug. 31, 2018. Axa SA’s real estate unit and development partner Lipton Rogers Developments LLP are building the 278-meter (912 foot) Bishopsgate tower, which will become the tallest in the City of London financial district. (Bloomberg)

Blackstone Group LP is departing from its usual “buy it, fix it, sell it” strategy to make a long-term bet on British commercial real estate.

The private-equity group that’s best known for refurbishing unloved properties and selling them on at a huge profit is pivoting toward a buy-and-hold approach with its politically sensitive purchase of many of the U.K.’s converted railway arches. Blackstone, together with Telereal Trillium Ltd., agreed to buy the portfolio of around 5,200 properties from Network Rail Infrastructure Ltd. for 1.46 billion pounds ($1.9 billion).

The deal, among Blackstone’s biggest U.K. real estate investments since its 2009 purchase of a stake in London’s Broadgate complex, reflects its growing appetite for investments that can be held for decades rather than years. The money manager deployed a similar strategy in 2015 when it invested in Manhattan’s biggest apartment complex, Stuyvesant Town -- another deal that aroused political scrutiny.

The U.K.’s railway arches have, over decades, been converted and leased to mainly small businesses, which use them for everything from bars and coffee houses to auto mechanic shops. About 75 percent of the rent generated by the Network Rail portfolio is in London, with the remainder concentrated in cities including Birmingham and Manchester.

The deal is therefore also a bet on the economic prospects of the U.K., which have been jeopardized by uncertainty over Brexit, as well as a wager on the beleaguered retail sector. The market for retail commercial properties has been devastated by the rise of internet shopping, which has laid waste to Britain’s high streets and just this year helped push icons ranging from discount store Poundworld Retail Ltd. to the upmarket House of Fraser Ltd. into trouble.

Read more: Britain’s Online Shopping Boom Is a Bust for Actual Stores

The proceeds of the Network Rail transaction will help finance an upgrade of the U.K.’s railway system, which is suffering from unprecedented congestion after years of under-funding. Telereal, which will own an equal stake with Blackstone, will oversee the day-to-day running of the properties and will hope it can manage them more efficiently and grow rents.

Private-equity real estate firms are increasingly raising long-term pools of capital that reduce the pressure to constantly tap investors and to pursue deals that must produce outsize returns within just a few years. The fact that the Network Rail deal involves thousands of small properties may mean competition for the portfolio was less intense due to the hands-on management required.

Arch Controversy

The deal is not without controversy. The properties’ tenants formed a campaign group to lobby the government about the sale, fearing it will lead to aggressive rent hikes. Blackstone and Telereal sought to alleviate their concerns in an open letter, which said they intend to own the assets for decades and that they’re “sensitive” to the needs of small businesses.

Still, the lobby group known as Guardians of the Arches disputed the sale of the assets “in one job lot,” and in a statement demanded that the buyers commit to a transparent audit of rents and leases.

Telereal Managing Director Adam Dakin said in an interview that about 900 of the arches are currently vacant, mostly due to their poor condition. He said this means the buyers can quickly grow rents by investing in the portfolio, without hitting existing tenants with rent increases.

(Updates with state of retail commercial-property market in fifth paragraph.)

--With assistance from Sharon Smyth.

To contact the reporter on this story: Jack Sidders in London at jsidders@bloomberg.net

To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Paul Armstrong, Jon Menon

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