Blackstone Exec: Liquidity Is Coming Back to Private Markets

Transactions, liquidity, price discovery, and valuations spin in a circle. Recently, the lack of transactions has affected valuations, which makes qualifying for liquidity through financing difficult to obtain, driving down valuations when owners have to sell for lack of refinancing, making them stick because price discovery becomes warped, and so on.

That may be coming to an end. According to an interview Global Co-Head of Blackstone Real Estate Nadeem Meghji gave to Bloomberg Television, liquidity is beginning to return to the markets.

His observation wasn’t unqualified. It’s a question of opportunities and who can respond to them.

“It’s one of the most exciting opportunities we’ve seen in a long time,” Meghji said. “If you take a step back, we look at the real estate cycle, and yes there’s been bad news: higher interest rates and challenges in the office business. But we believe that bad news is now priced into asset values, values are bottoming. Now is the time to play offense. Cost of debt has come down. The availability of debt has improved. New construction has come down dramatically. That creates the foundation for a recovery.”

“The sentiment will remain negative because there will be losses associated with deals that were financed in a different environment,” he added. “When you see green shoots and you see negative sentiment, you play offense. We’ve deployed nearly $20 billion of equity globally in just the last six months in our highest conviction sectors because we think now is the time to be aggressive and we’re not going to wait for the all-clear sign because once that comes it’s too late. Our pipeline today is as big as we’ve seen in 18 months.”

That’s on the buying side, but they’ve also been selling. They’ve sold $20B across 374 separate assets over the last two years, as interest rates increased.

“The way we’re structured in all of our vehicles is that we’re never a forced seller,” Meghji said. “The ideal for us is to sell real estate when it makes sense, when you’ve completed your business plan, when you can get a great price. Those sales generated $4 billion of profit.”

“If you own high-quality real estate in the right asset classes today, there’s a lot of liquidity,” he said. “In fact, when you take an apartment building out of market today, we see three times as many bidders as we saw only six months ago. And what’s happening on the ground and again, the headlines don’t capture this, is that buyers are seeing the cost of capital come down and they’re seeing new supply come down. Liquidity is coming back into the private market and we take advantage of that when it makes sense in our own portfolio to sell.”