2024 Was the Year to Play Offense in CRE Investing: Blackstone’s Kathleen McCarthy
By Andrew Coen December 9, 2024 12:11 pm
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As football season gets set for playoff drama, Blackstone (BX) Real Estate is reflecting on a year where playing on the offensive side of the ball was its central theme in capitalizing on a dislocated market.
‘We really felt like this is the time to go on offense and not wait for some kind of all-clear signal,” Kathleen McCarthy, global co-head of Blackstone Real Estate, said Thursday during the Real Estate Board of New York’s (REBNY) annual commercial brokerage holiday luncheon at the The Metropolitan Club in Manhattan. “This has been an incredibly active investment year for us.”
In the keynote interview moderated by Cathy Cunningham, executive editor at Commercial Observer, McCarthy said the decision to play offense was made in January when there were signs of capital costs coming down. This dynamic year panned out with AAA-rated CRE securities now roughly 200 basis points cheaper than late 2023, according to McCarthy, and Blackstone has responded by deploying $30 billion of capital globally across its CRE strategies.
Blackstone’s strategy has long centered around high-conviction thematic investing, which played out in 2024 by way of strong plays in data centers, logistics and rental housing. The private equity firm has been particularly bullish on data centers since its 2021 acquisition of QTS Realty Trust, which at the time was the world’s fifth-largest data center operator, and has scaled it by eight times since then, according to McCarthy.
Logistics represents more than 40 percent of Blackstone’s CRE portfolio, and McCarthy said she sees sustained tailwinds for the property sector because of continued e-commerce growth globally coupled with efforts to build up supply chains.
With multifamily, Blackstone’s attraction hinges largely on the U.S. not having enough rental housing to meet demand.
“We’re now in an environment where construction costs are high and borrowing costs are high. For families, that means if you want to own a home, it’s going to cost you 40 percent more on a monthly cost basis to own that asset,” McCarthy said. “We are expressing the view that there’s going to be the same demand for rental housing across market rate, affordable, student housing and single-family-rental.”
While Blackstone is looking to play offense now, McCarthy stressed it is also being selective, particularly in the office sector, which accounts for only about 1.5 percent of its CRE portfolio. Five years after COVID sparked a hybrid working trend, McCarthy sees signs of encouragement, particularly in New York where she said the Park Avenue corridor has the best-performing office environments in the U.S., but headwinds remain.
“We have a real bias towards newer products, the best markets, amenitized buildings and amenitized neighborhoods,” said McCarthy, noting that Blackstone began to scale back its investments in office around 2014 because of tenant demand gravitating toward the newest buildings. “A lot of parts of the office market today are still facing headwinds, but the office market is certainly not dead from our perspective, and we see more and more companies coming back to the office.”
Andrew Coen can be reached at acoen@commercialobserver.com.
