- Blackstone President Jon Gray wants to increase exposure to hospitality-linked real estate.
- Blackstone “de-emphasized” properties related to leisure. It’s currently 7% of the firm’s portfolio.
- Vaccinated passengers are returning to the skies after last year’s shelter-in-place orders.
Blackstone’s President and Chief Operating Officer Jonathan Gray is confident folks will return to the skies, particularly vacationers and leisure enthusiasts.
So much so, the private-equity firm is expected to increase exposure to hotels, and ancillary properties linked to hospitality like restaurants and conference venues, Gray said during Blackstone’s second quarter earnings call on Thursday.
“Hospitality in real estate used to be a very large portion. We de-emphasized that. But I think that number will go up,” Gray said.
With US airlines reporting increased forward-booking curves, and states easing lockdown restrictions, travel is up as vaccinated passengers crave holidays after months of staying put.
Real estate, particularly rental properties, provide a hedge against inflation for investors eyeing long-term assets that can provide stable returns while interest rates remain low.
For Blackstone, hospitality-linked real estate is just 7% of its portfolio, but Gray expects that to spike, alongside an uptick in value for its existing hospitality-linked properties, which took a beating when vacationers adhered to shelter-in-place orders last year.
“We will see a recovery in our existing assets. That was a sector hard hit by Covid,” he said on the earnings call. “This is the lowest exposure we’ve had [to hospitality-linked real estate], but I would like to increase that exposure.”
Gray, who joined the firm when he was 22 years old, rose to prominence through the real estate arm. He focused on hotels at a time when few institutional investors accepted the properties as a major real estate asset class.
Last month, Blackstone and Starwood Capital Group’s takeover of Extended Stay America was approved by the hotel chain’s shareholders. The private-equity firms agreed to buy Extended Stay for $20.5 a share.
In January, Blackstone acquired UK-based holiday company Bourne Leisure for about £3 billion ($4.1 billion).
Blackstone’s real estate investment arm posted some big wins in the last quarter.
Total assets-under-management for real estate grew to $207.5 billion last quarter, a 24% jump on the second quarter in 2020.
Blackstone’s roughly $3 billion sale of Australian warehouse and logistics assets Milestone in April propelled the real estate division to $5.3 billion in realizations last quarter and $18.7 billion over the last 12 months.
The private-equity firm also agreed to buy property owner Home Partners of America for $6 billion last month.
Overall, Blackstone posted second-quarter net income of $1.3 billion, up from $568.3 million a year earlier. The company’s shares were trading at $110.5 on Thursday afternoon, up 4.4% after the earnings call.
“In a market like this, everything gets pushed to the margins. So you need to look at what’s beaten up,” said Rajay Bagaria, chief investment officer at Wasserstein Debt Opportunities. “You are reaching for yield, so you’ll look at reflationary trades, and the last places to get returns. How do you not look at beaten up commercial real estate?”