“Investing before the ‘all clear’ sign”: Jon Gray on Blackstone’s $10B apartment deal

There are only a handful of 11-figure real estate deals each cycle, and Jon Gray shared his thoughts on the $10 billion one that epitomizes exactly where we are today.

Blackstone last week announced it had agreed to pay that sum to Apartment Income REIT, also known as AIR Communities, which owns 76 rental communities mostly concentrated in coastal markets like Miami, Los Angeles and Boston.

Gray, speaking at New York University’s annual REIT conference Wednesday, said this was the right moment to do the deal, as Blackstone could take advantage of the public markets’ short term focus on rents.

Across the country, multifamily is seeing a near-term deceleration in rents, thanks in part to the new supply added in the sunbelt markets. Blackstone, however, looks at it from the point of view of a longer-term housing shortage.

Gray said the country is building the same amount of housing it did in the 1960s, even though the U.S. population is double what it was back then. New housing has been seriously undersupplied since the Great Recession.

“We look at that long term structural shortage that’s out there and say if we can buy high quality real estate in favorable markets at good prices that makes sense for us,” Gray said. “And that’s what I mean by investing before the ‘all clear’ sign.”

Blackstone also agreed earlier this year to buy Tricon Residential, an owner of single-family rental homes and multifamily properties, for $3.5 billion.

Gray said that there have been some encouraging signs for commercial real estate recently. The cost of capital has come down from where it was in late October and debt has become “much more available,” especially in the CMBS market, he said. 

He hesitated to call it a V-shaped recovery, but said the market has hit something.

“We’ve described it as bottoming,” he explained.

Outside of apartments, the Blackstone president said the company is going deep into data centers. His private equity firm spent $10 billion in 2021 to take over the data center operator QTS and late last year inked a $7 billion joint venture with Digital Realty.

All told, Blackstone has about $50 billion invested in data centers. Gray acknowledged that the rush into the market could portend a bubble, but he said there were a few things checking over-exuberance. 

For one, unlike most other types of real estate, data center developers don’t build on speculation. And their tenants are some of the biggest, best-credit companies in the world. 

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Another factor comes down to energy use. In the mid-Atlantic region, Gray noted, power consumption has basically been flat over the past decade as the grid became more efficient and as manufacturing continued to decline. With AI taking off and electric vehicles, that consumption is expected to increase 70 percent over the next decade. Those power constraints will limit the development of new data centers, Gray said.

More broadly, the private equity exec said this is exactly the kind of market where Blackstone cut its teeth: a time of high uncertainty when capital is recovering, but still limited. 

“That to me is the optimal way to do it,” he said. “And that’s why you see us doing a number of fairly large bets.”