Blackstone's Ken Caplan: Distress Deals Are Coming, Just Not Overnight
Blackstone, one of the world's largest owners of real estate, is far from inactive, but it's also playing a waiting game of sorts. Blackstone Global co-Head of Real Estate Ken Caplan said the private equity giant knows from experience that the type of distress deals that helped elevate it to new heights coming out of the last recession don't unfold overnight.
"If you go back to the [Great Financial Crisis], it took a couple years before that activity really picked up in terms of what you think of as traditional investment opportunities, but I think we're going to see things coming up over time," Caplan said on a Bisnow webinar Thursday.
"There is sometimes this expectation there's a shock or crisis, and then the next day you can buy anything you want at like half-price," he said. "That isn't really how it works."
Blackstone navigated the last recession and aftershock and turned a handsome profit, eventually coming out as one of the world's largest property owners. Bets like its $39B acquisition of Equity Office Properties in 2007 and $10B spent on home rentals starting in 2012 have paid off, and the company now has a real estate portfolio valued at over $300B. Caplan leads Blackstone's global real estate team alongside Kathleen McCarthy, which has about 600 employees.
Amid the throes of the coronavirus pandemic, the company remains active. In one of the largest U.S. deals since March, it acquired a 49% interest in a $1.65B joint venture with Hudson Pacific Properties that owns 2.2M SF studio facilities and Class-A office buildings.
On the webinar, Caplan said he had just left a review committee meeting in which three new investments were approved, one of which was an urban logistics portfolio.
Caplan said he anticipates the uncertainty tied to once-bankable assets like offices and hotels to present plenty of opportunities in the coming months and years.
“I’m highly confident, given what we’re seeing and what our pipeline is now, that we’re going to see a lot of opportunities to invest across the real estate space, particularly in these areas that have been more disrupted and where there are more questions about," he said.
There are also likely impending opportunities in retail and hospitality, he said, as the sectors have been particularly damaged — but not uniformly.
“There are also opportunities that do get created from an entire sector being painted with a broad brush and being able to look through that into where there might be greater strength and opportunity," he said, going on to talk about grocery-anchored shopping centers and home-improvement retail.
Distress aside, Caplan said Blackstone has "even stronger convictions" for distribution centers, life sciences space and certain rental housing, especially U.S. suburban garden-style properties.
On the residential front, the company has returned to the rental housing market by leading a $300M investment into Tricon Residential, an owner of more than 30,000 units across the U.S. Just this week, the company was in talks with Summit Communities to acquire about 40 mobile-home parks for $550M, Bloomberg reported Monday.
Caplan said Blackstone's investments are more targeted than the company's scale — it has $167B of investor capital under management — leads some to believe.
“We get a lot of data out of that portfolio that informs how we see the markets, how we see investment opportunities and, for us, developing our convictions, because despite that scale of capital, we don’t just dribble a little bit of capital across the entire market," Caplan said. "We focus on where we have that highest conviction."
Blackstone's real estate strategy helped lead it to a bounceback second quarter after reporting a loss through the first three months of the year. In July, Blackstone Chief Financial Officer Michael Chae said in an earnings call about 80% of Blackstone's total real estate portfolio was "in sectors showing strong resiliency to COVID-related headwinds," attributing the performance to its logistics, residential and office assets.
Caplan pointed out logistics real estate and life sciences space as two prior focuses of the company that have been intensified by the pandemic.
The company has given a special level of attention to logistics real estate, which has grown in value in the last six months as other property types have stagnated or dropped. That is something Caplan said will continue, with an even greater focus on last-mile properties.
"We think there’s a growing recognition, but still not a full kind of recognition, of just how transformed this asset class has been," Caplan said.
In the last decade, Blackstone says it has bought over 1B SF of warehouse and logistics space around the world, and the sector now makes up about a third of its real estate portfolio. There is clearly tenant demand for last-mile, as well. Amazon alone is reportedly looking to amass a 1,500-strong portfolio of last-mile warehouses.
Blackstone is still a big believer in the purpose an office serves, Caplan said. But even that sector is facing questions about its utility post-pandemic makes for a captivating investment market, he said.
“To us, it's a really interesting investment environment because now you could have a different view on the future path of all these different areas," Caplan said.