[Ultimately it is crisis-ravaged real estate where Blackstone
seeks to continue to find a goldmine while anchored by generous
political contributions and fueled by desperation capital pouring out
of central banks and governmental treasuries. ]
[[link removed]]

WALL STREET MEGA-LANDLORD BLACKSTONE PLANS TO BENEFIT FROM ANOTHER
CRISIS  
[[link removed]]


 

Nick Corbishley
January 29, 2021
Naked Capitalism
[[link removed]]


*
[[link removed]]
*
[[link removed]]
*
* [[link removed]]

_ Ultimately it is crisis-ravaged real estate where Blackstone seeks
to continue to find a goldmine while anchored by generous political
contributions and fueled by desperation capital pouring out of central
banks and governmental treasuries. _

Single-mom Kennia Viera, center, who is unemployed and in danger of
being evicted at the end of January, protests with her kids,
Florisabella Houston-Viera, 7, second from right, and Enrique
Houston-Viera, 9, left, after speaking at a protest for tenants ,
Allen J. Schaben/Los Angeles Times via Getty Images

 

Back in 2008, Blackstone emerged as one of the biggest beneficiaries
of the subprime crisis, becoming a trailblazer in financializing
rents. As that crisis went global, so too did Blackstone’s property
empire. By the time the dust had settled, it was the biggest
commercial real estate company  on the planet, according to
[[link removed]]
_Fortune_ magazine. .

Now, Blackstone wants to repeat the feat, albeit using a somewhat
different playbook. At the Goldman Sachs Financial Services Conference
[[link removed]],
held on December 9, Blackstone’s CEO, Stephen Schwarzman, gave a few
hints about how it plans to do just that. Asked if he thought large
firms such as Blackstone would once more gain more market share during
this crisis, he responded:

I think something similar will happen. You always have winners and
losers. Blackstone was a huge winner coming out of the global
financial crisis. And I think something similar is going to happen.

During the last crisis, Blackstone pioneered the buy-to-rent
scheme by snapping up, for cents on the dollar, huge batches of
foreclosed homes from struggling and bailed-out banks and then turning
them into rental properties. In short order, Blackstone’s subsidiary
Invitation Homes became the largest owner of single-family rental
homes in the United States. It also took the meaning of “absentee
landlord” to a whole new level, as accusations of ill repair and
poor maintenance quickly mounted
[[link removed]].
Tenants also complained about excessive rent increases and fees.

WAITING FOR “BLOOD IN THE STREETS”

Once the model was up and running in the U.S., it was quickly exported
to cities in Canada (Toronto) and Europe (Berlin, Madrid, Barcelona,
Dublin, Stockholm…). Since going public in 2007, Blackstone has
multiplied eightfold the equity capital it devotes to real estate, to
$163 billion. As Scharzman himself put it
[[link removed]],
the company’s strategy in post-crisis Europe essentially involved
“waiting to see how beaten up people’s psyches get, and where
they’re willing to sell assets … You want to wait until there’s
really blood in the streets.”

As Blackstone’s property empire grew and grew, it managed to
convince regulators in the U.S. to allow it to transform part of that
empire into rent-backed structured securities. It paid Moody’s,
Kroll, and Morningstar lucrative fees to rate a large chunk of those
securities AAA. And when the securities began to sour just a few years
later after a Blackstone securitization saw a big drop in rental
income, Blackstone managed to convince
[[link removed]]
the Obama administration to bail it out by providing explicit
government guarantees for the higher-rated tranches.  

Now, around half of Blackstone’s earnings
[[link removed]]
come from real estate, with much of it coming from commercial
property. In its role as commercial landlord the company holds the
fate of hundreds of thousands of struggling small and large business
tenants in its hands. In the UK, it is already facing a growing
backlash after its commercial real estate subsidiary, the Arch
Company, began hiking rents
[[link removed]]
for some tenants in the midst of a global pandemic. Those tenants
include florists, cafés, breweries, gyms and mechanics, many of whom
have been sledgehammered by the recent crisis. But they’re unlikely
to find a sympathetic ear from their landlord.

In his chat with Blostein, Schwarzman didn’t just brag that his firm
had emerged as “a huge winner” from the global financial crisis;
he also boasted about his firm’s big earnings off high rents, which
is a bit rich (pun not intended) in the midst of a global pandemic
that has ripped asunder the livelihoods of untold millions of
residential tenants and upended the business models of untold millions
of companies:

“Just to give you some idea how this breaks, we pick the good
neighborhoods, if you will. Real estate has a lot of different sub
asset classes. And we’ve concentrated on logistics. It’s about 36%
of all the real estate we own. We’re the largest owner of real
estate in the private world. And that asset class has boomed with huge
increases in rent, almost no occupancies* and rent collections from
almost everyone.”

(* Presumably he meant vacancies)

PROBLEMS IN SPAIN

In some of Blackstone’s biggest property markets the pickings are no
longer as rich as they used to be. In Spain, residential rents were
already peaking in many major cities before the virus crisis plunged
the economy into its deepest recession on record. Now they’re
plunging
[[link removed]].
And house prices are expected
[[link removed]]
to do the same. There is also a moratorium on evictions. Plus, the
center-left Sánchez government has extended the minimum duration of
rental contracts, which has hampered the ability of institutional
landlords to turf out the existing tenants of newly acquired
properties as quickly as possible in order to jack up rents for new
ones.

None of this is good news for Blackstone, which owns some 100,000
real estate assets in the country
[[link removed]],
including a huge portfolio of impaired assets, such as defaulted
mortgages and the homes that back them, and real estate-owned assets
(REOs), that are controlled via dozens of companies. Now, it has begun
to offload
[[link removed]]
some of those assets.

In the U.S., Democrats passed legislation
[[link removed]]
that would create a one-year eviction moratorium, which could prevent
Blackstone and other Wall Street landlords from turfing non-paying
tenants out of their homes during a pandemic. But the bill is being
blocked by Senate Republicans, to whom Schwarzman donated $35 million
during the election cycle as well as an additional $15 million.

During the Goldman Sachs video conference, Schwarzman hinted that his
firm may soon start buying up more residential real estate in the
U.S., this time concentrated in the suburbs, to which many families
have relocated in the wake of recent lockdowns. But the firm is not
taking its eye off urban areas; it’s just waiting for prices to fall
low enough:

“In the suburbs, for example, suburban residential has turned out to
be quite a good place to be. When the cities get cheap enough, then
you go back to doing that. So, there’s a lot of interesting things,
and every part of the firm is really operating full out, which, if you
would have asked me in April whether anything like this would have
been possible, you’d have to say no.”

CENTRAL BANKS BACK TO THE RESCUE

In April markets were crashing. Then, little by little, the trillions
of dollars that had been conjured up by the Federal Reserve and other
large central banks began to feed through to the financial markets,
which in turn began to re-levitate, creating an even more bifurcated
economy. As mom-and-pop businesses hit the wall in droves and millions
of people lost their jobs, the Fed bailed out shareholders whose
stocks were plunging and rescued investors of high-risk assets that
were in the process of imploding, such as highly leveraged mortgage
REITs. The bigger the investor, the more money they got.

Private equity firms such as Blackstone were close to the front of the
queue. Despite having on hand an estimated $1.7 trillion of so-called
“dry powder” — uninvested but committed capital — private
equity firms were big beneficiaries of the emergency loan programs
launched in the CARES act. Many of the firms they owned ended up
receiving
[[link removed]]
millions of dollars in low-interest PPP loans from the Small Business
Administration (SBA). In the UK, private equity groups won a similar
concession
[[link removed]]
in September allowing UK companies they own to access emergency
state-backed loan schemes.

PE firms such as Blackstone also benefited in a more subtle way from
the Federal Reserve’s pledge to buy up to $700 billion of corporate
paper, including junk bonds and bond ETFs. In the end the Fed had only
bought $13 billion
[[link removed]]
in corporate bonds and bond ETFs as of early December, but its
jawboning spurred one of the largest junk bond buying binges in
history. And PE firms were among the biggest beneficiaries. The second
quarter saw one of the highest-ever levels of junk-bond issuance by
private equity-backed companies, at more than $31bn
[[link removed]].

BRANCHING OUT

In the knowledge that it enjoys the tacit and, at times, explicit
backing of the Fed and the U.S. Treasury and with over $150 billion of
dry powder — more than any other PE firm — Blackstone is branching
out. According to Schwarzman, it has expanded into 11 new business
areas with 33 different products since the global financial crisis:

“We used to just do very high return products. Now we do things that
are intermediate and things that for us are low, which are 8% plus,
but if you’re in the fixed income business, you think that’s
pretty high. And we’re expanding globally, doing that type of
strategy.”

One area Blackstone has recently moved into in a big way is,
ironically, life sciences. Just two weeks ago, it bought a
2.3-million-square-foot portfolio of lab buildings on a 30-acre campus
next to Massachusetts Institute of Technology. That was shortly after
recapitalizing BioMed Realty, the largest private owner of
life-sciences property in the U.S., for $14.6 billion. The firm is
also on the verge of acquiring another two life-science buildings in
the Boston-Cambridge market for $1 billion, according to sources cited
[[link removed]]
by the Wall Street Journal reported.

The life-sciences sector has been one of the few silver linings for
commercial real estate during the pandemic. While most office workers
continue to stay home, life-sciences jobs often require special
equipment and infrastructure, making it harder to work remotely.

“You can’t create a new drug from your living room or kitchen. You
need to be in physical lab space,” said Nadeem Meghji,
Blackstone’s head of real estate for the Americas.

Blackstone has also been snapping up warehouse space all over the
world to profit from the burgeoning e-commerce business. It is also
exploring ways to monetize the client data of the almost 100 companies
it has acquired over the years, according to
[[link removed]]
a recent Bloomberg report.

Coincidentally, that story broke just weeks after Blackstone completed
its $4.7 billion acquisition of Ancestry, the global leader in digital
family history services that has also expanded into DNA testing and
advanced genetic health screening. Over 3 million paying customers
from more than 30 countries have sent samples of their DNA to Ancestry
so that the company could tell them where their ancestors originated
from. Now those samples belong to Blackstone.

Blackstone insists it will not have access to Ancestry user DNA or
family tree data. But not everyone is convinced. Alan Butler, interim
executive director and general counsel of the Electronic Privacy
Information Center, said the deal raises privacy concerns as it gives
a private equity firm access to health data.

“The big concern when there is a big deal like this is that
investors might be interested in that data for other reasons, and not
in the ways that consumers intended when they gave over that
information,” Butler said in an interview with CBS News
[[link removed]].

Given Blackstone’s track record at monetising just about everything
it can get its hands on, Butler’s concerns are probably well
founded. But it’s ultimately in crisis-ravaged real estate where
Blackstone seeks to continue to find a goldmine. Anchored by generous
political contributions and fuelled once again by desperation capital
pouring out of central banks and governmental treasuries at a time of
deep economic crisis, the company hopes to strengthen its grip on
bricks and mortar at every level and in many countries. 

_NICK holds a B.A. in history and is a certified teacher who
specializes in teaching English for business and finance to companies
in Spain’s financial industry. You can contact NICK at:
[email protected]._

*
[[link removed]]
*
[[link removed]]
*
* [[link removed]]

 

 

 

INTERPRET THE WORLD AND CHANGE IT

 

 

Submit via web [[link removed]]
Submit via email
Frequently asked questions [[link removed]]
Manage subscription [[link removed]]
Visit xxxxxx.org [[link removed]]

Twitter [[link removed]]

Facebook [[link removed]]

 




[link removed]

To unsubscribe, click the following link:
[link removed]