Blackstone's Gray: Lack of construction boosts US confidence

Speaking on the opening day of the annual AFIRE conference, the global head of Blackstone's real estate group said the firm's success comes down to a simple strategy of team continuity and buying at a discount. In the US, a lack of new construction was giving the firm even greater confidence in the asset class.

The global head of The Blackstone Group insisted that significant distress in the commercial real estate market – coupled with a lack of new construction across most real estate sectors – was adding to an already compelling investment landscape and ensuring 2012 was a “target-rich” environment.

Jon Gray, speaking on the opening day of the annual Association of Foreign Investors in Real Estate (AFIRE) conference, said Blackstone had invested more than $16 billion of equity capital in the wake of the credit crisis with one simple strategy in mind: “Buy it, fix it and sell it.”

The sheer level of distressed debt and sellers in the market, coupled with constrained debt capital markets, was ensuring a “very compelling environment.” However, Gray added that the lack of new starts across most real estate sectors in the US had given the firm even greater confidence in the outlook for the domestic real estate market.

“Starts are down 70 percent from where they were in 2007. Effectively, that equals obsolescence,” Gray told delegates. “[That factor has] given us a lot of confidence.”

In a keynote address, Gray said sovereign wealth funds’ interest in core properties in key cities would continue to “keep pressure on cap rates.” When it came to Europe and fears of investing amid the current volatility, the global head warned: “Waiting for the all-clear sign is generally too late.”

Blackstone's latest venture is in the single-family rental space, with Gray revealing that the New York-based firm had invested “millions of dollars” on the infrastructure to buy foreclosed properties, rent them out and create large portfolios.

Accepting there were significant challenges to overcome, Gray said: “It's not for the feint of heart. There will be a lot of challenges for folks who look at this … We have decided to take the risk and deploy a lot of capital.”