The Blackstone Group (NYSE: BX) knows a lot about real estate. After all, it manages billions of dollars in real estate investments and it profited greatly during the Great Financial Crisis. It also happens to be one of the world's largest commercial landlords. Blackstone's Q3 earnings were solid despite a rough year for commercial real estate. It reported net income of $794.7 million, or $1.13 a share for the third quarter. The profit was up from $779.4 million a year ago. Much of Blackstone's activity is centered around its tech investments, but for real estate investors, it was what Blackstone CEO Jon Gray had to say about real estate that will be most compelling.
Industrial real estate was already a scorching hot sector before the pandemic and the massive uptick in e-commerce only accelerated that. Blackstone is on top of that, betting heavily on the future of logistics, which is now 36% of its total portfolio. Blackstone Real Estate Income Trust (BREIT), its public, nonlisted REIT, is up nearly 11% over the past two quarters.
But logistics isn't the only area that Blackstone is heavily invested. It's about to make some big moves in what could be this year's fastest growing segment: life science. It has raised $7.5 billion to invest in life science real estate. As President Jon Gray put it during the earnings call: "Maybe you can't buy a media company or tech company but you can own their real estate. In life sciences we made an investment in Tactical Opportunities in the cold storage logistics area."
Blackstone isn't the only major public company making big moves in life sciences. There are also several publicly-traded REITs that are also building major life science real estate portfolios. Ventas (NYSE: VTR) picked up a $1 billion portfolio of life science properties in San Francisco recently. Healthpeak Properties (NYSE: PEAK) is increasing its investment in life science, and Alexandria Real Estate Equities (NYSE: ARE) also has a primary focus on the life science sector.
Housing is shifting
Blackstone famously made a fortune during the Great Financial Crisis when it created the Invitation Homes (NYSE: INVH) juggernaut. Invitation Homes is now the largest single-family rental portfolio owner in the United States. Blackstone divested from the company in 2019, but it's not out of the housing game. In September, it was part of a group that raised $300 million for Tricorn Residential, a smaller, private, single-family rental operator with around 30,000 homes in its portfolio.
But it wasn't single-family housing that came up in Blackstone's earnings call, it was another type of rental housing: garden apartments. Before the pandemic, Blackstone had made several purchases of garden apartments in the Southeast, and it seems to have no plans to stop. Said Gray: "Resilient, income-producing assets such as logistics, garden apartments and life science office properties are re-rating higher in value in the current interest rate environment."
Garden apartments may be more appealing to renters in the pandemic and beyond for two key reasons. The first is that they tend to be located in suburban areas and are popular in secondary markets. The second is that they aren't large buildings with shared spaces and they offer easy access to the outdoors. If Blackstone is heavily investing in these types of buildings, that should be a strong signal for rental property investors.
Look to loans
When Blackstone does something well, it tends to next think about how to reinvent the wheel in another vertical. That appears to be what it's doing with BCRED, a fund for retail investors that will invest across a credit platform. Blackstone is hoping that BCRED will grow as quickly as BREIT did, and it's betting on its power in the marketplace to offer direct lending and access to private debt to individual investors in the current low-interest-rate environment. So far, investors agree. The fund raised $8 billion, creating the largest real estate credit fund ever created.
Blackstone is far from the only company that is amassing capital right now. Many firms are pulling together rescue capital and other funds that will be deployed toward distressed assets. So far, not much of this capital has been spent, but a second lockdown could be a serious blow for companies with heavy debt loads and bring more capital off the sidelines.
The Millionacres bottom line
Where Blackstone goes, the world tends to follow. You don't have to invest in Blackstone itself to get the benefits of the company's real estate moves. The fact that the company is actively amassing capital across a variety of sectors indicates that it still sees plenty of opportunities in real estate.