Real Estate Perspective From Blackstone (October 2022 Insights)
Jon Gray, Blackstone’s President, COO, and former Head of Real Estate, was recently interviewed for the new book ‘How to Invest: Masters on the Craft’ (which I highly recommend).
Given that Blackstone is a global leader in real estate investing, with a portfolio valued at over $577 billion, we thought the following excerpts from Jon Gray would be of interest to our investors:
“The core of our real estate business was to buy hard assets at a discount to replacement cost. If it costs $300 a foot to build an office building, can I buy something at $150 a foot or $200 a foot? That tends to be a good approach as a value investor in real estate.”
“If you talk about for-sale, single-family housing, there’s probably more risk, in the sense that you’re building something and selling it, and it’s a function of the market. If you’re talking about rental housing—think about an apartment complex—that tends to be less risky, because it’s less cyclical. People don’t give up their apartments. There’s some volatility, but nothing like, say, office buildings or hotels.”
“We generally are in the business of trying to buy existing real estate at a discount. Occasionally we’ll build things. But in general we like to try to get into real estate when it’s already producing income. The problem with development is it’s a bit like saying, “I’m going to IPO three years from now.” When you go to lease out your building, it could be in a different economic environment, and you might not have tenants, you might not have revenues. So we’re generally biased towards existing real estate.”
“One positive thing about real estate is that inflation drives up the replacement cost of new buildings. That gives you a little bit of a cushion on existing real estate.”
“Our investment in rental housing is based on the fact that we just haven’t built a lot of housing since 2008–09. We’ve averaged less than a million homes built in the United States during that period, versus probably the million-five we need to keep up with population and obsolescence.”
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