Blackstone Says Time to Buy Real Estate as Prices at Bottom

Article originally posted on HERE on March 15, 2024

Real estate prices have bottomed and there’s a great opportunity to move fast and buy assets at beaten-down prices, according to Blackstone Inc. President Jon Gray.

“The perception is so negative and yet the value decline has occurred, so when you get into this bottoming period that’s when you want to move,” Gray told Bloomberg Television’s Francine Lacqua in an interview in Rome, where he is attending the Bank of America Global Investor Summit conference.

Competition to buy discounted assets hasn’t been great so far, he said, adding that there will be a strong need for new capital as financial institutions begin realizing losses from loans that were made when borrowing costs were much lower. While Gray sees a wave of buying opportunities as some banks and even insurance funds may have to sell at discounts, the scale won’t be as bad as it was during the financial crisis, he said.

“There will be tons of headlines of market transactions that were made in a different world that have run aground now,” Gray said. “But on the ground we’re seeing the cost of capital start to come down, spreads are starting to tighten and new construction is coming down dramatically.”

Blackstone has already been stepping in to finance multibillion dollar real estate deals, and there may be more that emerge similar to the $17 billion portfolio sale of Signature Bank debt, Gray said. In November, the world’s biggest alternative asset manager bid for the portfolio of commercial-property loans from the Federal Deposit Insurance Corp.’s sale of Signature Bank debt. The collapsed lender was seized by regulators in March last year.

“As investors, sometimes, one of the risks is that you miss it by being overly cautious and I think now is probably a good time before rates come down,” Gray said.

Blackstone has grown into a powerhouse that touches all aspects of the economy, lending to businesses and financing infrastructure projects. Its assets hit $1 trillion in July 2023, making it the world’s largest publicly traded alternative asset manager.

Its shares surged 83% last year, including reinvested dividends, beating its biggest peers as well as the S&P 500, which returned about 25%. Blackstone became a member of the stock gauge in 2023. Blackstone’s shares have gained 8.3% this year.

The firm’s $60 billion real estate trust for wealth individuals, the Blackstone Real Estate Income Trust, allowed investors to draw cash in full in February. It marked the first time in a month that the fund fulfilled all redemption requests since November 2022. The milestone is a sign that investor pressure for cash back has eased.

“As the real estate market bottoms, as rates start to come down and the Fed at some point starts to cut, as well as the lack of new supply — that should be more constructive for commercial real estate and we think that will be a positive for BREIT,” Gray said.

The environment for fundraising is getting better compared to about six months ago, though it’s a bit slower on the institutional side, he said. Investors are more enthused about private credit, or secondaries, and insurance clients are increasingly realizing the benefits, he added.