This month, allow me to point you directly to page 14, where Evelyn Lee interviews members of the Blackstone team, including global head of real estate Jonathan Gray. I feel sure that the firm’s concerted move into core real estate will provide readers with much to ponder.
At face value, this is about a custodian of capital – known for its expertise in market timing and in buying, fixing up and selling real estate – being asked by investors to make investments in steady, income-producing assets where little else is necessary.
There very well may be cynics out there questioning this move. Is it right for investors to ask opportunity fund managers to also move into core? Are the same skills required and how will staff be remunerated if the return profile is lower? Is this just about fee aggregation?
It may not be in this magazine’s interest to be skeptical, but we can see some challenging trends. If cap rates for a lot of institutional-quality assets are near all-time lows, surely valuations can only go one way? As Katherine Bucaccio reports on page 42, there certainly is an abundance of cheap debt available and, in the short term, an abundance of equity might chase up values.
Still, core real estate investing is about longer-term horizons. So, what does that say about the opportunities left in the US for opportunistic firms or in Europe for that matter? Are there any bargains left and aren’t firms taking too much risk for what is on offer?
Furthermore, is there any link between this core move and a feeling of fear out there (largely unspoken) about interest rates? What will a rise in US interest rates do to the value of opportunistic investments made with 70 percent leverage if no rental growth comes through? The answers to some of these big questions are sure to come over the course of this cycle.
Still, it is not all about looking forward in this edition of PERE. One huge trend of the past few years has been consolidation in the industry and, as Jonathan Brasse reports starting on page 8, some rescue jobs have been required. For a detailed looks at several case studies, you will want to check out that article.
Finally, this is the month that we announce the winners of the Global PERE Awards. It is the custom nowadays to produce an annual review alongside publication of the winners in a special supplement printed alongside this main issue. Congratulations to all those nominated, and champagne to the winners.
As an aside, if any readers are jetting off to Cannes this month for the annual MIPIM property show, the edit team hopes to bump into you. If we do, let’s grab a cafe au lait.
Enjoy the issue,
Robin Marriott
Editor, PERE
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