Real estate prices are bottoming and there’s a great opportunity to move fast and buy assets at beaten-down prices, per BlackStone.
"The perception is quite negative, yet the value decline has already occurred, so when you reach this bottoming period, that's when you want to act," Gray told Bloomberg Television’s Francine Lacqua in an interview in Rome, where he is attending the Bank of America Global Investor Summit conference.
Competition to purchase discounted assets has been limited so far, he said, noting that there will be a strong need for new capital as financial institutions begin to realize losses from loans made when borrowing costs were much lower. While Gray anticipates a wave of buying opportunities as some banks and even insurance funds may have to sell at discounts, he believes the scale won’t be as severe as during the financial crisis.
“There will be numerous headlines about market transactions that were made in a different world and have now hit obstacles,” Gray said. “But on the ground, we’re seeing the cost of capital start to decrease, spreads are beginning to tighten, and new construction is significantly declining.”
Blackstone has already been stepping in to finance multibillion-dollar real estate deals, and there may be more opportunities emerging, similar to the $17 billion portfolio sale of Signature Bank debt, Gray said. In November, the world's largest alternative asset manager bid for the portfolio of commercial-property loans from the Federal Deposit Insurance Corp.'s sale of Signature Bank debt. The collapsed lender was seized by regulators in March last year.
“As investors, sometimes, one of the risks is that you miss it by being overly cautious, and I think now is probably a good time before rates come down,” Gray said.
Blackstone has grown into a powerhouse that touches all aspects of the economy, lending to businesses and financing infrastructure projects. Its assets reached $1 trillion in July 2023, making it the world’s largest publicly traded alternative asset manager.
Its shares surged 83% last year, including reinvested dividends, outperforming its biggest peers as well as the S&P 500, which returned about 25%. Blackstone became a member of the stock gauge in 2023. Blackstone’s shares have gained 8.3% this year.
The firm’s $60 billion real estate trust for wealthy individuals, the Blackstone Real Estate Income Trust, allowed investors to withdraw cash in full in February. It marked the first time in a month that the fund fulfilled all redemption requests since November 2022. The milestone is a sign that investor pressure for cash back has eased.
“As the real estate market bottoms, as rates start to come down and the Fed at some point starts to cut, as well as the lack of new supply — that should be more constructive for commercial real estate, and we think that will be a positive for BREIT,” Gray said.
The environment for fundraising is improving compared to about six months ago, though it’s a bit slower on the institutional side, he said. Investors are more interested in private credit, or secondaries, and insurance clients are increasingly realizing the benefits, he added.
