Blackstone's Michael Nash Talks Debt And The Real Estate Cycle
Nash has a bird's-eye view of the global and U.S. real estate markets as head of Blackstone Real Estate Debt Strategies (BREDS) and Blackstone's closed-end Real Estate Income Funds.
Tale Of The Tape: Past Year
One notable difference between Blackstone Group and its peer group is the scale of Blackstone's global real estate operations.
Key Takeaways: Nash Interview
He was also quick to caution that real estate remains fairly valued at this point in the cycle; however, Blackstone remains "cautiously optimistic that the economy will continue to improve and support real estate fundamentals."
He noted that long-term investors, such as sovereign wealth and pension funds, are paying more for high quality real estate assets, but not using excessive leverage to do so -- which should help prevent problems "should the cycle turn or change."
However, gateway cities, such as New York, San Francisco and Miami, are seeing high levels of residential, condominium and hotel development.
At this stage of the real estate cycle, Blackstone is able to realize gains from the "fix-up job" and holding period, with Nash noting that "the markets are receptive to paying us what we think is appropriate value."
Nash pointed out that traditional lenders such as commercial banks were no longer asking Blackstone to "co-originate" loans where the banks took the senior debt and Blackstone would take the higher risk mezzanine piece.
Instead, Blackstone's strategy has shifted to originating the entire deal and selling off the senior debt piece to the banks, explaining: "You need a big capital base to originate sizable whole loans and great banking relationships that you'll syndicate to. Fortunately, our platform has that ability in both cases."
BXMT prefers high demand markets with barriers to entry including: "New York, California and London because the real estate there is incredibly valuable, which means deal sizing is bigger than you will see anywhere else."
Nash emphasized that BXMT loans are floating debt tied to LIBOR, and if rates were to rise in the future, the company actually benefits.
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