“Scale is still our calling card”: Jon Gray talks Blackstone’s real estate strategy for 2020 and beyond

Real estate earnings account for about half of total

Jan.January 30, 2020 02:00 PM
Blackstone’s big real estate deals in 2019 included a massive logistics portfolio and the Bellagio in Las Vegas (Credit: Getty Images, iStock)

Blackstone’s big real estate deals in 2019 included a massive logistics portfolio and the Bellagio in Las Vegas (Credit: Getty Images, iStock)

UPDATED, Jan. 30, 2019, 2:24 p.m.: Following a year of mega-deals that brought Blackstone Group’s real estate assets under management to an unprecedented size, the firm’s executives sound optimistic about opportunities in the new decade — while acknowledging that it’s sometimes hard to find investments worth spending all that money on.

“Blackstone is in terrific shape by any measure,” Blackstone president and chief operating officer Jonathan Gray said on the firm’s fourth-quarter earnings call Thursday morning.

“Our clients are quite pleased with our performance and are entrusting us with more of their capital. Our people are energized and proud to work at the firm, and the opportunities for continued growth, even in a challenging investment environment, are significant.”

For the full year, the alternative investment firm’s earnings were $3.1 billion, up 9 percent from the year prior. Just under half of that total came from the real estate segment, which produced $1.5 billion in distributable earnings in 2019.

Blackstone’s assets under management grew by 20 percent to $163.2 billion, while private equity AUM grew 40 percent to $182.9 billion, both new records.

“Given the meaningful growth in scale of the firm’s perpetual vehicles, which generally earn performance revenues at year end, there’s a seasonal benefit that was evident in our 2019 results,” Blackstone chief financial officer Michael Chae said, noting that the firm has a robust pipeline lined up for 2020. “As such, we believe more than ever that it is most informative to look at the firm’s earnings over a full calendar year.”

The company deployed $7.3 billion in real estate capital in the fourth quarter, bringing total real estate deployments for 2019 to a record $22.5 billion. More than half of the fourth quarter’s number came from the $4.25 billion purchase and leaseback of MGM Resorts International’s Bellagio Las Vegas.

“Those are very innovative transactions done by the real estate team, that we would not have done previously” without new investment vehicles, Gray said.

Earlier in the year, Blackstone shelled out $18.7 billion to buy a massive industrial portfolio from Singapore’s GLP, in one of the largest real estate deals in history. “Scale is still our calling card,” Gray said of the deal.

“There are opportunities even in a challenging market, and I would not compare this to the excesses of ‘06, ‘07,” he added. “I can see that it’s a tough time to deploy capital, but at the same time the things that we believe in are still giving us the opportunity to put out money.”

Finally, in response to the last question on the earnings call, Gray acknowledged that the firm’s recent expansion had produced a lot more work for executives as the firm strived to maintain a centralized structure.

“That is what our business is all about … maintaining our discipline. The most important thing is that we run a centralized investment process,” he said. “What we’ve done is made Mondays a lot busier at Blackstone in terms of the number of global investment committees,” as the firm’s capital is still allocated centrally while its employees pursue deals across the globe.

“That means that the number of memos some of us are reading over the weekend is quite substantial, but we think that that is very important.”

Correction: This story has been updated to properly identify what Jon Gray said on the earnings call. 

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