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💼 Blackstone
briefcase | invest smarter | issue #86
🤑 That's a lot of billy's
We received exactly 76 emails over the past week with some version of the same question: Are we in a recession?
*Takes a deep breath*...At briefcase, the consensus is...
Truth is, it doesn't really matter. As real estate entrepreneurs, we should be ready for all economic seasons. Those who are ill-prepared for recessionary and inflationary headwinds will suffer, and those who kept dry powder and their debt levels to reasonable levels are licking their lips.
There's opportunity amidst the chaos. Rising rates, slowing housing demand, and turbo inflation are but a few of the current economic headwinds.
Despite this, the largest global real estate firm, Blackstone, has assembled a record-setting $30 billion war chest to invest in...
...Even more real estate assets.
Known as the Blackstone Real Estate Partners X, this death star fund will seek to capitalize "opportunistically" on real estate assets in the commercial, multifamily, hospitality, and warehousing spaces, among others.
Blackstone is no stranger to real estate, as they are the largest asset manager globally with $881 billion under management. Their portfolio spans several key galaxies areas including real estate, private equity, credit, and insurance.
Source: Motley Fool
As the financial world battens down the hatches dealing with market volatility, rising rates, and reduced venture capital, the death star Blackstone is gearing up to do the opposite.
Oh, and they raised the money in just 3 months.
Be fearful when others are greedy and greedy when others are fearful — Warren Buffett
In other words, the storm troopers smart folks over at Blackstone are expecting some deals to be had in the coming years as we experience recessionary headwinds and asset prices begin to cool.
China is doing the same, but for different reasons. The central government has amassed a $44 billion fund to prop up distressed real estate firms in that country like Evergrande (🗣️ ever-grandé), among others. According to unnamed Chinese officials:
The source said the fund will be used to bankroll the purchases of unfinished home projects and complete their construction, and then rent them to individuals as part of the government's drive to boost rental housing.
Not a bad plan. We actually covered this story last year with such titillating headlines as...
😲 Evergrande & Chinese real estate: Not so grandé
☕ I'll have an Evergrande with a shot of WTF
🎭 The Evergrande Finale: Chinese real estate
You can tell we had fun. Nevertheless, Blackstone's new fund shows us that...
Smart Money is Dry Money
Sitting on the sidelines with dry powder seems to be where the smart money is these days. Rising interest rates add downward pressure on cash flows and revenues, putting asset owners who are over-leveraged at risk.
There is a record level of dry powder in the venture and private equity world. According to new data, there was a total of $1.78 trillion in "dry powder" among VCs and PE firms as of February 2022, near the record high of $1.81 set the month prior. This, despite 2021 being a record year for deals, provides insight as to where the smart money is sitting.
This trend has been ongoing for years...
Source: Mercer
...And this is exactly what happens when the Fed had been leaning on the money printing turbo lever (aka quantitative easing) for over a decade.
It was free money for all! But, that party has now ended.
With debt now more expensive and low cap rates (higher prices), there will be real estate projects that implode from a lack of funding, a reduction in values, as well as ongoing supply chain and labor issues.
Distressed prices will mean that groups like the death star Blackstone can go bargain shopping.
Upside to the Downside
We should all be somewhat thankful that we are entering a real estate market downturn. A balanced market is a good market, and what we've had for the past years has been anything but.
Couple that with the decade-long money printing machine and record-low interest rates, and it's no wonder that real estate was posting 20% year-over-year gains on the scoreboard.
The party was going to end sometime. In fact, savvy investors like Anakin Skywalker Blackstone CEO Stephen Schwarzman are looking at the current economic climate and are doubling down on acquisitions. That's smart money.
In sum, since someone else said it best, we will end on a quote from @properties CEO Thad Wong:
I’ve been looking forward to a downturn for a number of years. We’re hiring into the downturn...A slowing market is always the best market to grow. Oftentimes your competition becomes weak...When the market is growing everything is easy and everyone has great numbers and everyone is profitable. But when a market is declining, that’s the only time you can understand and see visually the well run organizations versus the poorly run organizations. The organizations that have true value prop and the ones that don’t.
He's right.
So What? Real estate is cooling, and it's just the beginning. Smart money is on the sidelines, opportunistically and patiently waiting.
What's in your wallet?
Weekly Real Estate Stories
🌞 Solar Loans: The largest lending the US, Rocket Mortgage, is rolling out a new loan product for homeowners who want to buy solar panels — HW
📉 Mortgages Rates: Are falling, as investors price in the risk of a recession — Zillow
🤑 Home Equity: Now sits at $11.5 trillion, but likely has peaked — HW
🤩 STRs: Airbnb recorded a record $2.1 billion in revenue in Q2 — The Real Deal
Up next, on briefcase...
...It's National Underwear Day, we won't say how we are observing, but we are enjoying the freedom.
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Written By Brad Cartier
