Blackstone Group’s president and COO Jon Gray thinks higher inflation is on the way, and he thinks risky real estate investments could be the antidote for investors.
“What we’re trying to do is position ourselves for things that look and feel [the] least bond-like as much as possible,” Gray said Thursday during the investment giant’s first-quarter earnings call.
Gray said safe but low-yielding investments, such as fully leased office properties, are less attractive in an environment where investors are seeking higher yields. But plays like multifamily rental buildings in markets primed for job growth, on the other hand, will provide the kinds of returns Blackstone and its investors are after.
“That’s how we’re trying to prepare ourselves for what we do think will be a higher inflationary environment,” he said, adding that there’s still “lots of runway in real estate” — the segment of Blackstone’s business that produces nearly half of the company’s fee-related earnings.
“I think we’re early days in the buildout of that,” he added.
Blackstone recorded net income of $3.37 billion for the first quarter, up a whopping 230 percent from a loss of $2.6 billion during the first quarter of last year. Gray said the alternative asset manager is spending now in preparation for a post-Covid economic recovery, pointing to recent acquisitions like a private aviation business, a holiday park operator in the United Kingdom, and the firm’s recent deal to buy hotel operator Extended Stay America with Starwood Capital Group for $6 billion.
“As the economy reopens, we think the combination of increased consumer savings, fiscal stimulus and global cabin fever will be powerful,” he said.