How is Blackstone coping with rising rates of interest, inflation, and an impending recession? They’re actually simply staying the course.
“I really feel like we’ve been engaged on a portfolio that can carry out on this setting for a very long time,” mentioned Kathleen McCarthy, world co-head of Blackstone Actual Property, on the opening session of the ULI Fall Convention.
Eighty p.c of Blackstone’s $550 billion actual property portfolio is invested in warehouse, residential leases, resorts, and lab workplace area. These concentrations, she mentioned, ought to present the money circulation progress that may offset the impacts of upper debt prices, worsening cap charges and rising costs.
Blackstone will even, in fact, profit from its scale. The corporate’s dimension, McCarthy famous, is “pure benefit” due to the data its personal portfolio generates. “One of many abilities we’ve developed is methods to quiet the noise and take heed to the actual property we’ve now and what it’s telling us,” she mentioned. The corporate additionally has scale of capital and deep expertise seizing alternatives that come up from dislocation. “I feel that units us up very well—that mixture of data, capital and expertise,” she added.
Blackstone’s Convictions
When selecting investments, McCarthy mentioned, Blackstone appears to be like at not simply what is occurring in actual property however on this planet extra broadly. Which actual property sorts will profit from bigger developments, and which received’t? Along with discovering sectors with sturdy demand outlooks, Blackstone additionally focuses on sectors with shorter lease phrases with the intention to seize money circulation progress.
“Logistics has been our highest conviction theme for over 12 years now due to the persistence of the pattern of products shifting on-line—of our complete lives shifting on-line,” McCarthy commented.
Ecommerce progress, the realignment of provide chains, and retailers’ rising want for warehouse area because the financial system softens is making a “triple-layer cake” of demand in opposition to comparatively modest provide, McCarthy mentioned. “After we take a look at our portfolios around the globe, we see hire progress within the U.S. markets at 30 p.c; Europe, however all its challenges, 20 p.c; and Asia someplace in between these two.”
Residential actual property is one other vital conviction theme for Blackstone. The corporate’s large portfolio spans city and suburban, market-rate and rent-regulated, LIHTC, single-family leases, and scholar housing. The corporate “supersized” its scholar housing portfolio this summer season with the acquisition of American Campus Communities.
“I attempt to remind of us that what is occurring within the for-sale market—the upward prices in possession—actually drive demand for rental housing in all varieties,” she mentioned.
This 12 months, Blackstone fashioned April Housing to create options and capital to extend the availability of inexpensive housing. The corporate was fashioned after Blackstone’s buy of American Worldwide Group and Cornerstone Group. McCarthy mentioned governments in any respect ranges can do extra to extend the availability of inexpensive housing, and the actual property trade must be in dialog with the federal government about what they see and about options.
“After we take into consideration what’s driving persistent inflation, a lot of it comes again to the undersupply of housing that’s been build up for the reason that Monetary Disaster,” mentioned McCarthy.
Blackstone can be passionate about hospitality. “There’s a like a 30-plus 12 months pattern line that goes as much as the correct so far as demand for journey,” she mentioned. That pattern was interrupted by the pandemic, however it’s coming again at various paces all through the world, although not for each asset.
The corporate’s lodge portfolio advantages from “classes discovered over a protracted time frame,” McCarthy mentioned. In consequence, Blackstone owns super-special, high-end properties globally and people providing extra inexpensive worth factors, like Prolonged Keep America (in partnership with Starwood Capital Group) and Nice Wolf Lodge (with Centerbridge Companions). Throughout a recession, she famous, folks nonetheless take holidays. They only modify the space and the worth they pay. Hospitality can be an ideal place to be in an inflationary market due to “the one-night leases,” she mentioned.
Lab Workplace Explosion
The life science growth, McCarthy remarked, is “one of many extra fascinating issues” that has occurred to the trade. Solely 5 years in the past, lab workplace tenants had been primarily pharmaceutical corporations in secluded suburban campuses. At the moment, there’s a complete universe of tenants that wish to be within the nation’s analysis and medical capitals.
“The life science revolution took maintain,” she noticed. “We went, as an ecosystem, from focusing solely— or nearly purely—on prescribed drugs to pondering way more broadly about well being and all of the methods you may improve it and deal with illnesses.”
In 2020, Blackstone took BioMed Realty non-public and concentrated its belongings in what McCarthy known as the world’s 5 finest lab workplace markets: Boston/Cambridge, San Francisco, San Diego, Seattle and Cambridge, England. “We would like our capital to be the place corporations wish to be,” McCarthy mentioned.
