Jonathan Gray, the global head of real estate at The Blackstone Group, said the retracing of the world’s largest financial institutions after the global financial crisis had left the firm with little competition for making large private real estate investments.
Speaking to more than 400 delegates at the sixth annual PERE Summit Asia, Gray said that many institutional investors that backed large, global, commingled real estate opportunity funds before the crisis had since regarded their experience as poor. He also said that was one consequence that has led to few successor funds for Blackstone to compete with. The largest of these funds were raised by large financial institutions.
“Today the competitive dynamic is really good,” said Gray, “It was previously the large financial institutions but investors had poor experiences in large, global real estate funds.” Consequently, as Blackstone seeks to execute its investment thesis of “But it, fix it, sell it” and “try to manufacture core [real estate]” on a global basis and at scale the firm is better placed to succeed.
This shrunken pool of large private real estate investment management businesses has come at an opportune time, Gray added. Again, he attributed the actions of large financial institutions – oftentimes lenders to real estate – in the lead up to the crisis, as facilitating an opening for Blackstone to buy in compelling circumstances after it began.
Last year, Blackstone raised $13.3 billion for its latest global opportunity fund, Blackstone Real Estate Partners VII – the largest fund ever raised in the sector.
With debt availability down across the globe, Gray said since 2009, the firm has been able to buy at “significant discounts around the world”. He said: “Many of the financial centres saw their stocks shrink by 50 percent to 100 percent and their balance sheets shrank too. That created a lot of distress around the world.” As such, the firm has been able to deploy capital in retail landlord General Growth Properties, hotels business Extended Stay, Australian property firms Centro and Valad and debt books in Japan and developments in Shanghai among other investments.
Further, he said the lack of available credit has coupled with a scarcity of public capital supporting certain property owners. He said public issuance of equity was down 87 percent since 2007. And that, consequently, that has led to an improvement in occupancy levels as development pipelines are stalled or halted and tenants soaked up existing space.
“In the US we’ve seen an 80 percent decline in new real estate and that has helped occupancy levels. In Asia we’ve seen a reduction of new office supply in Beijing of 70 percent from five years ago. Bangalore, India has seen 60 percent less supply.”
To further his assessment of Asia’s major markets, Gray said Australia was likely to see lower cap rates outside of “super prime”, Japan faced a “deleveraging challenge” where focus should be on “current return”, India was replete with “folks who had gone ‘long’ land but were ‘short’ cash, and China had “cooled”.
“In developed Asia we’re seeing distress and in emerging Asia we see capital markets dislocation,” he added.
Blackstone has currently $57 billion of equity under management within its real estate division, which, Gray said had returned 16 percent net return on average over the last 20 years. PERE interviewed the Asia team at Blackstone in the February issue. To read it click here.