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Keynote Session with Jon Gray

jon gray real estate impact conference
   

Jon Gray, global head of real estate for the Blackstone Group, a multinational private equity, investment banking, alternative asset management and financial services company based in New York City, is bullish on real estate in South Florida.

“We love great cities where people love to work and visit and travel,” says Gray. “Miami clearly qualifies. It’s a gateway to Latin America and the city keeps getting better and better. In Miami in particular, we’d like to try to buy real estate in a period of volatility and hold it for long periods of time.”

Gray’s comments came during the keynote session at the fifth annual University of Miami Real Estate Impact Conference hosted by the School of Business Administration and the School of Architecture in February 2016. Howard Lorber, president and CEO of the Vector Group (majority owner of Douglas Elliman Realty) interviewed Gray, whose firm has $94 billion in equity under management, $175 billion in assets, and a portfolio of 50,000 single-family homes in 13 states. One third of those homes are in Florida and Gray called Miami the firm’s biggest market by value.

“We’ve gotten so big because we’ve delivered strong returns. We can never lose sight of that. I have to spend most of my time finding where to invest capital,” Gray said. “Making sure you are doing right by your talent—growing and retaining talent—is important but clearly investing is where I spend most of my time.”

As Gray tells it, Blackstone—which manages large pools of capital primarily for pension funds—started snapping up public companies in the early 2000s. That’s when the firm stumbled on the idea that it could increase the quality of commercial real estate by bringing in strong management teams.

jon gray keynote real estate impact conference

“Coming out of the [2008] crisis, we liked housing. We liked pan-European logistics. We built a great management team and went all in,” Gray said. “When we find something we like we put a lot of chips on the table and we create a great team behind it. Our business has evolved from just investing to a much more active firm.”

Of course, Blackstone has suffered losses. The company saw profits shrink by 70 percent in the fourth quarter of 2015 in the face of a weak stock market. The company also took a hit on its stake in the Hilton hotel chain. Hilton Worldwide Holdings has lost $2.3 billion in value since Sept. 2015.

Lorber, who sits on the School of Business Real Estate Programs Advisory Board, asked Gray what has kept Blackstone execs calm in the midst of tumultuous markets like the Great Recession in 2008.

“When you are heading into a tough period you don’t want to be forced to sell at the wrong time. We knew we had time on the debt. We had reserves on our fund. We believed the crisis was cyclical in nature and not the end of the world,” Gray said. “What kept us calm was knowing we had a good underlying business. We had good capital structures an we believed things would come back.”

Lorber and Gray discussed the “R” word—recession. Gray flatly stated that he doesn’t see a recession hitting the United States this year. Rather, he believes the markets are seeing another wave ripple from the 2007-2008 financial crisis, with lots of new supply coming online globally as demand is slowing. 

“We still see good fundamentals in the U.S. real estate market. We would expect to see pretty good rental growth this year, as well as occupancy cash flow,” Gray said. “You could see a year of very modest increase in value but the idea is that you are going to see a sharp decline with those fundamentals doesn’t seem reasonable to us.”

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