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The president of Blackstone believes real estate prices have bottomed out, and the time for investors to jump in before they recover is now.
Jon Gray, president of the $1 trillion asset management firm, said in a recent interview with Bloomberg that investors exercising too much caution right now risk missing out on opportunities, as he believes real estate prices will soon be boosted by interest rate cuts.
“Now is probably a good time, before rates come down, to move,” Gray said. “Perception is so negative, the headlines are negative, yet the value decline has occurred.”
Gray described the current market as a “bottoming period” that should inspire investors to get moving on new purchases and that investors who move fast stand to be rewarded once prices recover.
“I’m not saying there is some V-shaped recovery, but when you get into this bottoming period, that’s when you want to move,” Gray said. “As investors, you miss it by being overly cautious and I think now is probably a good time before rates come down, to move.”
Gray further explained that the forces shaping the current real estate market have already taken place, and that the next major mover of forces should be the Federal Reserve’s lowering of interest rates.
“Real estate has obviously been hit by two big forces here, one work from home, which has really hit the office sector, and the second is rising interest rates, which has caused cost of capital to go up and multiples in real estate to come down,” Gray said. “We’re seeing cost of capital start to come down, spreads are starting to tighten, and new construction’s coming down dramatically, so in sectors that we like — logistics benefiting from e-commerce, digital infrastructure, student housing, hotels — we think there are opportunities.”
The billionaire investor also added that while he expects some financial institutions to take financial hits from the ongoing real estate slump — with turmoil largely concentrated in commercial real estate — he expects that the sector at large will largely remain stable.
“I don’t think it’s systemic,” Gray said. “I don’t think this is like 2008-09 in terms of the scale that we’re facing, but I do think there will be some situations.”
With an asset management portfolio totaling $1 trillion, most of Blackstone’s real estate holdings are in commercial real estate, though the company also deals in credit, infrastructure, hedge funds, insurance, growth equity and secondaries, and it recently made a big bet on residential rentals with the $3.5 billion acquisition of the Canadian real estate firm Tricon Residential.
