Jonathan Gray, the global head of real estate at Blackstone Group LP, said the firm plans to spend more money on properties overseas, where bargains are more plentiful than in the U.S.
Developing countries “are beginning to look much more interesting” after the fall in Asian and South American markets amid fears of slowing economies and rising interest rates, Gray said yesterday at the Harbor Investment Conference in New York. In Europe, sluggish growth and a restructuring of the banking system are generating good investing opportunities, he said.
Gray, 44, oversees almost $80 billion in property investments for New York-based Blackstone, the world’s largest manager of alternative assets including private equity and hedge funds. The flight of capital from China, India, Brazil and other emerging markets has created a void that the firm is angling to fill, he said.
“Most people have said emerging markets have become too scary,” he said, referring to concerns about governments, a residential bubble in China or corruption in India.
The skittishness benefits investors in two ways, Gray said. The drop in capital inflows means “your capital gets treated better. You can buy things at a more favorable price because people need your capital more,” he said. In addition, it has triggered a falloff in construction in India and China that will curtail supply.
“The things you worry about most in our business is too much capital and too many cranes,” he said, referring to construction. “In emerging markets, it tends to be cranes that are the big problem.”
Construction in Bangalore and Beijing has tumbled more than 50 percent from past levels, he said.
While Europe’s economic crisis has eased, the shrinkage of loans and other assets that regulators are pressing banks to undertake will “be taking some oxygen” out of the region’s economies. Blackstone is forecasting “very slow growth,” Gray said.
For real estate investors, Gray expects forced sales by European banks to continue for several more years, fostering opportunity. Blackstone is seeking distressed warehouses, hotels and office buildings throughout the region, he said.
“When people are forced to sell, the pricing tends to be better,” he said. “In Europe, it’s not a growth story. It’s a distress story.”
In the U.S., an improving economy and rising property values have boosted the value of Blackstone’s existing real estate investments while making low-priced deals harder to find, Gray said.
The U.S. economy is “not a rocket ship, but we are seeing good signs in the hotel business, in particular,” said Gray, who led Blackstone’s $26.5 billion leveraged buyout of Hilton Worldwide Holdings Inc. in 2007. Hilton, which went public in December, is up 9.5 percent since the initial public offering.
Gray, whose group amassed 43,000 foreclosed houses in Atlanta, Chicago, Las Vegas and other cities, said there is “great strength” in the U.S. housing market.
He predicted that residential construction, which still lags behind pre-crisis levels, will continue to rise for the next two years.
“Right now, around the world, I’d say there’s the most interest in investing in real estate in the U.S.,” Gray said. “That makes it a little more challenging than other places today.”