INREV conference: Blackstone 'looks at the world in a different way'

An ability to implement flexible capital structures, deleverage at the right moment and scale have helped Blackstone expand its real estate operations in the last 25 years, the company's global head of real estate Jon Gray told the INREV annual conference in Barcelona on Wednesday.

While Blackstone did not stop carrying out big deals in 2007, even when the markets started getting shakier, Gray said the company’s strategy was certainly not driven by clairvoyance. A key takeaway from that period, he said, was to stay on the defensive side.

‘When you don’t know when the weather is going to change, you need to be prepared. We didn’t know that we were headed for the storm of the century but we had prepared, by capitalising our funds and deleveraging the business by selling off some of the assets. Good assets tend to appreciate over time. Making sure your ship can withstand all types of weather is really important.’

The company was also aggressive during the downturn following the outbreak of the global financial crisis, in Europe as well as the US. In 2009 it acquired a 50% stake in the Broadgate estate in London which it sold four years later at a £600 mln profit to Singapore’s sovereign wealth fund GIC. Blackstone has also been one of the most aggressive investors in Spain in the past three years, Gray said. ‘We have a willingness to look at the world in a different way.’

Earlier this month Blackstone announced it had bought GE’s real estate portfolio for $23 bn as part of GE Capital’s strategic wind-down. Gray said the deal was sealed in just 3 ½ weeks even though it was more complicated than the Equity Office Properties transaction in the US in Februay 2007 which covered just one asset and one geography. ‘There were a lot of complications but our teams worked 24/7 on this deal. Fortunately our business has also expanded which gave us the opportunity.’

Gray said Blackstone had already bought lots of real estate from GE and had a long-term relationship with the company based on mutual trust and confidence. The timing was good, he noted, shortly after the launch of Blackstone’s 8th real estate fund. ‘It was nice that this happened a couple of weeks later,’ he agreed. ‘We are able to operate on a scale and at a speed that nobody else can match.’

Gray launched Blackstone’s real estate division at the beginning of 1990s and has since exanded it into a global business wth $90 bn of assets under management. Gray said he learned some valuable lessons during the subsequent downturn including the need to set up big investments in the right way and create flexible capital structures.

‘The reason that the Blackstone business model works and we have attracted so much capital is not because of our boyish good looks,’ Gray said. ‘We have consistently delivered good investment returns - 18% net globally to investors over the past 23 years. If we stop delivering those returns, the capital will go somewhere else.’

Blackstone’s run of big deals has been made possible by the company’s prodigious fundraising drive in recent years. Such has been the success of its fund raising capabilities that it reported ‘undrawn capital (total “dry powder”) across all of its units of $46.1 bn at the end of last year, despite $30.6 bn of total capital invested and/or committed over the last year.