Blackstone's Jonathan Gray Adjusting To Retail's Challenges
Across the global developed economies, online makes up between 4% and 18% of total sales, but "no matter where you are, at 4% in Italy or 18% in the U.K. online retail is still growing at 15-20% a year," the man in charge of the world's biggest real estate portfolio told participants of NYU's Schack Institute of Real Estate annual REIT symposium.
Blackstone bought nearly 600 U.S. shopping malls from Australian real estate firm Centro in 2011 for $9.4B, in what was one of the largest post-financial crisis deals at the time. The firm then sold many of those assets through a public offering in 2016.
In 2013, Blackstone paid $718M for a 29% stake in retail developer Edens. A year later, Blackstone put down nearly $2B for a 95% stake in 76 shopping centers from American Realty Capital Partners. And in 2015, Blackstone also swooped in for 49 U.S. shopping centers, paying RioCan $1.9B for its properties.
Blackstone plans to hold onto grocery-anchored shopping spaces, Gray said, because it is harder to dis-intermediate the low-cost delivery system of a grocery store, and selling food goods over the internet is tougher than other items.
Another retail asset Gray identified as a solid investment is infill retail. He saw the shops at Sky View Parc in the Queens neighborhood of Flushing, near New York City's third-busiest train station, as a prime opportunity. Blackstone bought the complex in 2015 for about $400M.
However, Gray believes that retail outlets selling books, consumer electronics and office supplies face tremendous pressure from e-commerce. For most mall companies in the U.S. a large percentage of the space is in the hands of department stores, many of which are going out of business. A lot of the malls around the U.S. are still mostly apparel-based, a trend Gray said will soon be a thing of the past.
"You have to expect the amount of capital you will have to deploy into shopping centers will be more, while the rate of growth will be slower," Gray said. "I would not say doom and gloom, but certain sectors of the retail space will have to be repriced."
To adapt to retail's move online, Blackstone is investing in warehouses and logistics centers.
"There is a growing demand for industrial space," Gray said. "Industrial nationally is 5% of the real estate sector, while office is 14%. New supply for industrial is not at the level of incremental demand."
Blackstone has invested in 330M SF of industrial space all over the world. Last year Blackstone paid $1.5B for a 12M SF portfolio of mostly West Coast warehouses. Most recently the firm made an $8.6B bid for Singapore-based Global Logistics Properties.
"It is hard not to be enthusiastic about logistics," Gray said.