Blackstone execs have made clear in recent months that they see the commercial real estate market bottoming and are on the hunt for good opportunities. The latest was chief operating officer Jonathan Gray, who said at the Bernstein Strategic Decisions Conference earlier this week that CRE is showing “early signs of recovery” as market activity continues to pick up. “Now, I’m not saying this is some sort of sharp V-shaped recovery, but as you get to this bottoming period, what you want to do is try to deploy capital into this,” he said, according to a transcript from S&P Global Market Intelligence.
He added that new supply has been coming down “dramatically,” while the cost of capital is starting to fall.
However, “the market is going to be, I’m sure, for another, some period of time, very negative on real estate, and that’s just the way these cycles tend to work,” he said.
“So I would say the combination of where we are at the cycle, the fact that we’ve got $64 billion of dry powder to deploy in real estate, and where we position our assets is going to lead to very differentiated outcomes.”
Gray said Blackstone has outperformed the market due to the composition of its portfolio. For starters, less than 2% of Blackstone’s exposure is in the US office sector. The firm’s largest concentration sits in logistics, which Gray called the best-performing sector. It also has large exposure in rental housing, particularly student housing.
But there is another asset class that has also caught the enthusiasm of Blackrock execs: data centers. Earlier this week, Nadeem Meghji, global co-head at Blackstone Real Estate, told CNBC that data centers were the most exciting asset class across the entire firm – not just real estate. The driver, of course, is artificial intelligence, which has boosted demand 11-fold in the last five years. “It is driving demand like we’ve never seen before,” he said. Here too, Blackstone is well positioned to capture this activity as its QTS Data Centers is the fastest growing data center company in the world and data centers represent the fastest growing component of its non traded BREIT.