Blackstone’s Gray: ‘You need to buy things that will grow faster’

US and Spanish housing, Indian office buildings, global logistics and life science office buildings all have a common thread.

For Blackstone president Jon Gray, these are the geographies and sectors that have higher earnings growth – and where the New York-based alternative asset manager has the largest concentrations of real estate.

“Our largest holdings reflect growth-oriented sectors, more insulated from rising rates,” he said in an earnings call Thursday with reporters. “We’re clearly heading into what we think should be a rising rate environment, as we see global economic strength. As investors, what that means is you can no longer rely on multiple expansion and therefore you need to buy things that will grow faster.”

“You can no longer rely on multiple expansion and therefore you need to buy things that will grow faster.”

-Jon Gray

In Spanish housing, for example, the firm is seeing both a shortage of supply and a cyclical recovery, while the firm has become a major player in logistics as retail activity has shifted from bricks-and-mortar locations to ecommerce. In fact, Blackstone’s non-traded REIT, BREIT, is nearly 50 percent invested in logistics, versus just 8 percent for the overall public REIT index, Gray said.

Geographically, Gray highlighted the differences in the pace of the firm’s deployment of capital between the US and Europe.

The firm has now invested $8.8 billion, or approximately 50 percent, of the $16.41 billion of committed capital in Blackstone Real Estate Partners VIII, its global opportunistic real estate fund, in the three years since the fund’s inception, according to the firm’s first-quarter earnings results. By contrast, BREP Europe V already has $4.94 billion, or more than 60 percent, of its $7.86 billion in committed capital since the fund’s December 2016 inception date.

“The market has gotten tougher for opportunistic US real estate,” Gray said. “There’s some larger situations that we’re looking at that have slowed us down. On the flip side, if you look at our Europe V fund, which is another large fund – I think $9 billion, there we’re moving much faster. And that speaks to what we see really across the board in credit as well, attractive opportunities. There’s still more legacy distress in Europe.”

Indeed, of the $6.7 billion invested or committed during the first quarter, 50 percent was transacted outside of North America, according to Blackstone’s earnings results. The investment volume includes $1.3 billion for the purchase of a majority stake in the Banco Popular Spanish real estate portfolio, as well as a commitment to acquire Pure Industrial Real Estate Trust, a public Canadian industrial real estate investment trust, in a deal expected to close in the second quarter.

Blackstone had nearly $120 billion in real estate assets under management and $450 billion in overall AUM as of the first quarter, up 17 percent and 22 percent year-on-year, respectively, according to its earnings results.