With the US Federal Reserve increasing interest rates by 25 basis points earlier this month, most industry observers now expect continued rate hikes in 2017. Nadeem Meghji, Blackstone’s co-head of US acquisitions, explained how the New York-based firm plans to mitigate the negative effects of interest rate increases by emphasizing specific property types.
For starters, the firm will continue to eschew the single-tenant net lease real estate to hedge against inflation and interest rate pressure on pricing, Meghji said.
“In this (increasing interest rate) environment, you have to look for ways to make money besides cap rates tightening,” he said.
The firm also sees weakness in suburban office properties, and plans to focus instead on urban office in “knowledge centers,” cities such as Seattle that have substantial employment growth for high-paying jobs. Meghji also pointed to life-science real estate as a property type with continued growth potential, regardless of climbing interest rates.
Blackstone also expects to remain active in last-mile logistics, the part of the supply chain that moves goods to their final destination. These largely urban infill locations have benefitted from the continuing expansion of e-commerce and consumers’ preference for fast shipping. In September, the firm inked a deal to buy a portfolio of western US logistics centers for $1.5 billion with capital from its core-plus fund, Blackstone Property Partners, PERE previously reported. On the flipside, Blackstone is staying away from Class B malls to avoid the negative effects of e-commerce on the retail space, Meghji said.
In the housing space, Meghji said Blackstone continues to be interested in both single-family rentals and multifamily housing. The firm is planning an initial public offering for Invitation Homes, its single-family rental housing platform, as soon as next month, PERE previously reported. In November, Blackstone bought a 16-property multifamily portfolio across the country for $748 million.