Jonathan Gray, global head of real estate of the Blackstone Group. (handout)
Amid shuddering global markets, Jonathan Gray sees opportunity.
Backed by 23 years with what has grown into one of the world’s largest private equity and asset management companies, the Blackstone Group real estate chief assured an audience of more than 500 Thursday that 2016 won’t be hit with recession.
“What I think we’re watching now is another wave ripple from our financial crisis going back to ’07-’08,” he said. “There are forces causing a slowdown. There is some reason for some concern. I just think the markets seem to be reacting a little bit excessively. That for us can create opportunity again. If we’re willing to say, ‘Yes, we see a slowdown,’ but we don’t see things as dark as the markets do.”
Gray was the final speaker at the University of Miami’s annual Real Estate Impact Conference, where real estate professionals from around the U.S. gathered to discuss and predict what the next 12 months may look like.
Interviewed by Howard Lorber, chairman of Douglas Elliman, Gray gave the audience a blueprint for how his company dealt with the financial crisis.
Blackstone doesn’t develop real estate, noted Gray, who joined Blackstone straight out college in 1992. They let others “do the heavy-lifting.” The company prefers to purchase hard assets at a discount.
During the foreclosure crisis, Blackstone went on a buying spree for single-family homes, building a portfolio of 50,000 houses in 13 U.S. markets. The idea was to renovate the homes and rent them, Gray said.
“We always remember the most important part of our business is to deliver great returns to investors,” he said.
The company kept calm when markets last collapsed because it believed in the economy’s cyclical nature.
Gray, who is based in New York, advised investors to hold onto their assets if they can, even if a downturn approaches.
“You just don’t want to be forced to sell at the wrong time,” he said. “When you hit these rough patches, you need to make sure to have the capital structure and wherewithal to get through it and not let go of that asset.”
One-third of Blackstone’s single-family home portfolio is in Florida, and Miami is its biggest market by value, he said. Gray conceded he has a “favorable bias” toward Miami. He noted the population continues to grow and praised Florida for its low-cost environment.
He hinted warehouses and retail centers will be the region’s sweet spots this year, at least for Blackstone.
“Warehouses are a great business in Miami, given the amount of commerce done in the area,” he said.
The company probably won’t dip into South Florida’s hotel or office market. While the hotel business is healthy, Gray pointed out there is a lot under construction right now, which may explain the company’s recent move to sell its Hyatt Regency Pier Sixty-Six in Fort Lauderdale, a waterfront hotel and marina asset expected to trade for $200 million.
“We still see pretty good underlying fundamentals in real estate in the U.S.,” he said. While the U.S. is producing jobs, it’s not producing enough homes. So demand for housing remains strong. While there’s new hotel supply coming in markets like New York City and Miami, nationally supply levels are still low.
He said, “The idea that you’re going to see very sharp decline doesn’t seem sensible to us.”
Blackstone has $94 billion in real estate assets under management, and bought or committed to buy $63 billion worth since late 2009 under its opportunistic acquisition strategy.