Schwarzman, speaking with Clelia Peters, the president of Warburg Realty and Inman’s editor-at-large, at Inman Connect New York, during a talk titled, “What It Takes: Lessons in the Pursuit of Excellence,” gave some insight behind his company’s real estate investment strategy.
“The supply-demand for urban will continue because there’s more and more migration into cities because younger people like experiences,” Schwarzman said. “They’re trading off having a lot of square footage for keeping more money and having experiences.”
Coming out of the recession, Blackstone was the biggest owner of single-family homes in the country — and it still owns a lot of single-family real estate. In buying foreclosed homes, Schwarzman picked up a few lessons and trends from the recession, including increasing global urbanization and the realization that homes aren’t always going to go up in value.
“The financial crisis educated buyers that houses just didn’t go up in value and sometimes you could lose a house, so it was a very traumatic experience,” Schwarzman said. “The next generation, the millennials, basically had difficulty getting hired because the economy was bad.”
He continued, “So you either lived with your parents or you felt that the suburbs were isolating so it started this migration into the cities.”
Blackstone, for a time, owned Invitation Homes, a company that it officially cashed out of, after a very successful bet, in November 2018. Blackstone still owns more real estate than any other company in the world, thanks to its massive portfolio of commercial space, but the investment in single-family housing was a quick investment that netted the company billions.
The company purchased around 50,000 foreclosed houses in 2012, according to Schwarzman. The houses were purchased cheaply and fixed up, providing construction jobs.
“That was a very successful investment,” Schwarzman said. “We took it public, and we sold that. And at the same time, we could see the trend in the cities so we started buying multi-family.”
The real estate industry is unique, according to Schwarzman, and it’s a lot different from buying a company. The government essentially regulates how much building can take place, whereas you can buy a company not knowing that secretly, another company is building a much better version of whatever the company you just bought is building.
“That’s the lucky thing about real estate: It can’t talk to you,” Schwarzman said. “It is just what it is. When we buy companies, there are a lot of humans and they have needs. In real estate, everything is transparent. It’s the only business I know where there’s complete transparency on supply and demand.”
The biggest issue the industry will face, as urbanization continues to increase, will be regulatory headwinds, according to Schwarzman. He said the lack of building is putting political pressure on local elected officials to embrace things like rent control, when the real reason that rents are rising rapidly is because of the lack of building affordable housing.
“It’s putting a lot of pressure on rents, which, if you’re an owner, it’s a good thing. If you’re looking at society as a whole, then some people can’t afford these types of increases,” he said. “The reason that’s occurring is municipalities either haven’t been building enough lower-cost housing or are putting financial incentives for that to happen.”