Blackstone executive says commercial real estate is bottoming

By Steve Goldstein

Blackstone's chief operating officer told analysts that now is the time to invest in commercial real estate because there are early signs of recovery.

"Now I'm not saying this is some sort of sharp V-shaped recovery," said Jonathan Gray, chief operating officer at Blackstone, to a Bernstein conference held Wednesday, according to a transcript from S&P Global Market Intelligence. "But as you get to this bottoming period, what you want to do is try to deploy capital into this. And most people are going to be very cautious, because they're going to keep reading a lot of negative headlines from the past, and those are going to continue."

Blackstone last year started gating its real estate investment fund as investors sought to withdraw their money. It subsequently said in February that it was able to meet all investor demands for redemptions that month, according to a report in the Financial Times.

The fund this year has seen a 2.2% return, through the end of April.

The firm has been investing in the sector. Last year, it led a deal buying a 20% stake in a venture holding $17 billion worth of commercial real estate from the former Signature Bank. On Monday, it bought a $1 billion portfolio of multifamily, office and hospitality assets across the U.K. and U.S. from Deutsche Pfandbriefbank.

Gray said new supply has been coming down "dramatically," while the cost of capital is starting to fall. Commercial mortgage-backed securities activity was up fivefold in the first quarter, he said.

"So I would say the combination of where we are at the cycle, the fact that we've got $64 billion of dry powder to deploy in real estate, and where we position our assets is going to lead to very differentiated outcomes. But the market is going to be, I'm sure, for another, some period of time, very negative on real estate, and that's just the way these cycles tend to work," said Gray.

More broadly, Gray said the firm feels better about the inflation picture than some of the recent data suggest. He said, based on owning 230 companies and 13,000 real estate assets, they see rental housing costs "running well below the stated data." In manufacturing companies, input costs are "pretty flat." And wage growth is slowing, he said.

"So I know there's a debate, is the economy reaccelerating? Is inflation taking off? That wouldn't be our view. I think our view would be inflation probably a little lower than consensus and then growth a little lower than consensus. But we're not talking about things falling off a cliff, just a deceleration we're seeing in the economy," he said.

Blackstone shares (BX) this year have declined by 11%.

-Steve Goldstein

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05-30-24 0401ET

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