Don’t worry too much about interest rates: Blackstone’s Gray

"There's a (false) sense that owning real estate is the same as owning a bond.”
October 19, 2016 01:30PM

Jonathan Gray thinks people are getting too worked up about interest rates.

“There’s a (false) sense that owning real estate is the same as owning a bond,” Blackstone Group’s real estate head said in an interview on CNBC Tuesday. “Real estate, like stocks, can see earnings growth. And that’s what we’re seeing today because of favorable fundamentals.”

As the Federal Reserve readies itself to raise short-term rates later this year, many in the real estate industry worry that higher short-term rates could spill over into higher long-term rates, which could increase the cost of financing and put downward pressure on property prices.

But Gray argued that rising rates don’t have to be bad for the real estate market since they tend to coincide with improving fundamentals – such as employment and income. He pointed out that the real estate market “did OK” in previous eras of rising rates.

“We don’t expect to see the growth in value in the next couple years that we’ve seen in the last four or five years,” he admitted. “But we don’t expect to see some sort of sharp decline in the near term.” [CNBC]Konrad Putzier