New Blackstone Fund Ready to Capitalize on CRE Market Dislocation

“We have this substantial dry powder at an opportune moment we think in the cycle, a moment where there’s obviously a dislocation and there’s in many respects quite a bit of fear and negativity around real estate, and we think that that plays to our strengths,” Meghji said Wednesday during a discussion at the 27th Annual REIT Symposium hosted by the New York University’s Schack Institute of Real Estate at the Pierre Hotel in Manhattan. “We also intend to rely more than ever on the data that emanates from our portfolios as the biggest owner of real estate, because in a world that is changing as fast as it is, it’s all about having that insight.” 

The new BREP X outraised Blackstone’s last global real estate fund that closed in 2019 by about $10 billion. The new fund will largely target logistics, rental housing, lab offices and data center properties.

Meghji noted that overall credit conditions for CRE are in far better shape now than the Global Financial Crisis (GFC) of 2008 when the sector was overleveraged with higher supply. Blackstone’s CRE portfolio has drastically changed since the GFC when it was roughly half office and half hotels, and now 80 percent is geared toward warehouses, rental housing, life sciences and hospitality. Only 2 percent of its global portfolio is in traditional U.S. office properties. 

“What’s so remarkable about this cycle is that, at this very moment, fundamentals in many of our core sectors remain the strongest we’ve ever seen,” said Meghji during the discussion moderated by Robin Panovka, partner at Wachtell Lipton Rosen & Katz. “Our job as investors — and I think everyone’s job here — is to be able to understand the difference between the winners and the losers, and not to paint real estate with a broad brush.” 

 Even though borrowing conditions remain a challenge, Meghji stressed there are still opportunities to obtain capital for projects in the current climate, with more insurance companies seeking increased exposure to real estate along with agency loans for multifamily assets and big banks still lending on balance sheets for long-standing clients. Less debt availability in the market “plays to the strength” of Blackstone, according to Meghji, because of the ability to contribute large-scale equity for big transactions. 

Blackstone has not been immune, though, from the headwinds facing the CRE market, as evident by its $70 billion Blackstone Real Estate Income Trust (BEREIT) hitting its redemption limit for the fifth consecutive month in March as investors sought to reduce exposure to distressed real estate. Meghji stressed that despite the large number of redemption requests, the REIT, which was launched in 2017, has strong health with 90 percent of its debt at a fixed rate and with 9 percent cash flow growth in the first quarter. 

“As we look forward, we think it’s well positioned because we’re in a world now where supply was already short in our sectors and is now declining further, and it’s probably going to decline even more with what’s happening with the regional banks,” Meghji said. “Our view is that if we continue to deliver performance then flows will follow, and that really remains our focus today.”

While Blackstone has pivoted away from the office sector, Sam Zell, founder and chairman of Equity Group, told conference attendees in a luncheon talk just before Meghji’s discussion that he still sees a future for the asset class. Zell noted that it is especially important for younger workers to be in an office setting to gain mentorship opportunities, and that as companies contemplate layoffs in a down economy, the employees with whom they have in-person interactions will be better positioned. 

“Can you be as productive in pajamas as you are in a suit? I question that,” Zell said in the discussion, which was moderated by Marc Norman, associate dean at NYU Schack. “One of the greatest lies in the world is that people working from home are as productive as people who are in the office.” 

Andrew Coen can be reached at acoen@commercialobserver.com.