Jon Gray talks “last-mile” logistics and privatizing REITs

The decline of retail as we know it has an upside, according to Jonathan Gray, Blackstone Group’s global head of real estate, and it’s in logistics.

“It’s hard not to be enthusiastic about logistics, in particular, around this last mile,” Gray said during a conversation over lunch at the annual REIT symposium hosted by NYU’s Schack Institute at The Pierre Hotel. As online sales eat away at traditional retail, the industrial space needed to support that activity increases, he said, particularly “last mile” distribution centers. “If you need to get to the customer in an hour or two, you need to be in Secaucus, or you actually need to be in Manhattan or Brooklyn itself.”

Blackstone [TRDataCustom] has been investing in logistics in the United States and elsewhere, including a $1.5 billion deal for West Coast-portfolio from LBA Realty. The private equity firm also paid close to $1 billion in two logistics deals with the Goodman Group in Australia. Blackstone also has plans to IPO its European Logicor portfolio for north of $11 billion.

Gray pegged Blackstone’s global real estate interests in all sectors at $102 billion in equity and more than $200 billion in assets.

From logistics, the talk moved to the topic of the day, real estate investment trusts. Moderator Barry Vincour, the editor of REIT Wrap, asked whether Blackstone will continue to privatize REITs and what they look out for when making an acquisition. In August, the firm launched non-traded Blackstone Real Estate Income Trust, and has said it’s looking to raise $5 billion from investors.

“My gut is there will be more privatizations,” Gray said, explaining that he looks for opportunities between the public and private markets. Investors treat REITs like bonds so they’re afraid when interest rates are anticipated to rise. “For the activity level to pick up,” Gray said, “I think it will be related to sharp upward movements of interest rates that scares the REIT market.”

That’s one opportunity for private equity to step in. Another is when a sector falls out of favor and the market becomes overly negative, Gray said.

“Like malls?” Vincour interjected, referencing the earlier conversation about the challenges facing department stores and other retail sectors.

“Potentially,” Gray answered, but quickly qualified that the pricing would have to be right before he would wade into retail.

Asked about cap rates in the New York’s office market, Gray replied he didn’t expect them to get any lower, or rise dramatically. “There’s a lot of foreign capital that wants to own real estate in New York.,” he said, pointing out that foreign investors led or partnered in most large office deals in recent years. “The desire to own New York real estate will be a constant.”

(To see a selection of properties owned by Blackstone Group, click here)