By Ilaina Jonas
Feb 13 Much of Blackstone Group LP's vast
U.S. real estate holdings may be bought by, or turned into, real
estate investment trusts over the next couple of years, the head
of the private equity group's global real estate division said
Jonathan Gray said U.S. capital markets, particularly the
bond market, has opened its arms to real estate investment
trusts, making it likely that much of its U.S. holdings of
offices, homes and hotels will be bought by existing REITs or
become REITs though initial public offerings.
"I think much of what we own will end up in the public
markets," Gray said while speaking at the Credit Suisse
Financial Services Forum in Miami.
Gray said the U.S. debt market, which provides loans that
make it possible to finance real estate purchases, are
improving. If this continues, Blackstone will sell much of its
real estate held in funds in 2013 and 2014, he said.
Blackstone has a simple "buy-fix-sell" real estate
investment philosophy, Gray said. Through its funds, it buys
properties at a discount and below the cost of replacing them
with new construction. It fixes them up, increases occupancy and
sells them to investors looking for stable cash flows.
Blackstone, which took office companies Equity Office
Properties Trust private in 2007 and Trizec the year before,
said now that many of the office buildings are at least 90
percent occupies, it may pick up the sales of its properties.
"If the market stays conducive, I would expect to see the
acceleration of sales," he said.
Some of those properties could end up in the hands of large
U.S. REITs, which often buy well leased properties with stable
incomes. Sovereign wealth funds, looking for safe investments
abroad, may be the buyers of its shopping centers and office
buildings in dense urban markets, such as New York, he said.
As for its large Hilton Worldwide Inc, which the company
took private in 2007, Gray said the company may become a
publicly traded REIT in a year or two. Blackstone has expanded
Hilton overseas in the past five years, increasing the number of
hotel rooms abroad to 70,000 from 5,000 and adding such brands
as DoubleTree by Hilton and Hilton Garden Inn Hotels.
"The potential to grow the brand outside the U.S. is
enormous," he said.
For the past two years, Blackstone has been buying thousands
of foreclosed homes at deep discounts in places such as Florida,
Arizona and California, where the housing bust was particularly
severe. It has invested about 10 percent of the purchase price
to fix them. It has teamed up with Dallas-based Riverstone
Residential Group, an apartment management company to oversee
them. But home prices are appreciating quickly in some of those
markets, and Blackstone may soon stop buying them.
"For us, we think the investment window is this year," he
Gray said that the single-family-home-for-rent business may
lend itself very well to eventually becoming a REIT.
Blackstone recently finished raising a $13.3 billion global
real estate fund. Outside the United States, Blackstone is
spending a fair amount of time in Europe, where banks have 2.4
trillion euros on their balance sheets, making its real estate
loans up for sale very cheap, Gray said.
"We're buying now from Spanish banks, Italian banks... the
Irish, they're going to come out of the crisis first," he said.
Blackstone is also active in India, where the demographic
growth is fueling the demand for office buildings and other real