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Goldman Sachs and Blackstone Bet on Market Bottom
Both firms are preparing to ramp up their investments, betting that the market is ripe for a rebound.
Jordan B. & Han-Gwon Lung
March 18, 2024
Together with
Good morning. Blackstone and Goldman are gearing up to increase investments in CRE, convinced the market has bottomed out. Plus, Hilton sealed a $210M deal to tap into college towns.
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Market Snapshot
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MARKET RECOVERY
Goldman Sachs and Blackstone Bet on Market Rebound
After enduring falling property prices, high interest rates, and a construction slowdown in the U.S. CRE market, Goldman Sachs Asset Management (GSAM) and Blackstone Inc. (BX) foresee a market rebound.
Goldman Sachs: After taking a pause, GSAM announced a resumption of "actively investing" in the U.S. CRE sector, with co-head Jim Garman expressing confidence in the market's recovery trajectory. The firm's optimism is spurred by a combination of lowering interest rates and a market that seems to be bottoming out, signaling potential stabilization and opportunities for growth.
“We don’t think there will be a sharp, V-shaped recovery, but believe there will be significant dispersion between property types and sectors, creating a focus on opportunities in sectors powered by technology, demographics and sustainability.”
Blackstone: Parallelly, Blackstone President Jon Gray has voiced a similar sentiment, highlighting the exceptional opportunity to acquire real estate assets at discounted prices. Speaking at the Bank of America Global Investor Summit in Rome, Gray stressed the need to capitalize on the current market dislocation, marked by a lack of competition for discounted assets and a broader need for new capital amidst financial institutions' looming loan losses.
“There will be tons of headlines of market transactions that were made in a different world that have run aground now,” Gray said. “But on the ground we’re seeing the cost of capital start to come down, spreads are starting to tighten and new construction is coming down dramatically.”
Zoom in: Despite the positive forecast, the banking sector faces heightened regulatory attention, especially regarding falling real estate values and potential bank losses on property loans. Yet, with more capital reserves and a greater readiness to work with investors, banks today are in better financial shape than they were during the 2007-2009 crisis.
➥ THE TAKEAWAY
Looking ahead: The resilience of the U.S. economy is expected to aid in the CRE recovery. The focus is now on the speed of this rebound rather than further price declines. Blackstone’s Jon Gray sums it up well: being overly cautious means missing out, and with interest rates expected to drop, now is a time to act. But the world has changed, and so has the art of winning deals.
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✍️ Editor’s Picks
Settlement: The National Association of Realtors agreed to a $418M payout to settle excessive fee lawsuits from home sellers.
Level up: Early enrollment is now open for the groundbreaking Wharton Online Real Estate Certificate Program in collaboration with Wall Street Prep. (sponsored)
Refinance: Peachtree Group secures a $103 million loan to refinance two Marriott hotels in Silicon Valley, aiming to retire previous construction debts.
Miami venture: Adam Neumann, the founder of WeWork, joins Miami Worldcenter's massive development project, marking his return to real estate with startup Flow.
Watchlist: The Los Angeles Airport Marriott's $130.1 million CMBS loan lands on watchlist due to falling debt service coverage ratio, reports Trepp.
🏘️ MULTIFAMILY
DFW is booming: Dallas-Fort Worth leads the U.S. in metropolitan growth, adding roughly 418 residents daily, per U.S. Census Bureau findings.
Conversion king: Nathan Berman sets sights on transforming Pfizer's former HQ into 1,500 rental units in his largest project to date.
Dilworth development: Centre South's first phase kickstarts in Charlotte’s historic Dilworth, blending 329 new apartments with affordable housing options.
Transformation: J.J. Abraham secures approval to transform Beverly Grove strip mall into an eight-story, 126-unit apartment complex, marking a significant redevelopment step for LA.
🏭 Industrial
Buying land: Holt Lunsford Commercial approaches the $100M mark for its industrial fund, aiming to secure and develop properties in North Texas to lead the market.
Chip expansion: Samsung Electronics will receive a $6B federal grant under the CHIPS and Science Act to enhance U.S. chipmaking facilities.
Industrial financing: Libitzky Property secures $30M in loans for Tempe industrial campuses, highlighting funding flexibility and growth in the Arizona market.
🏬 RETAIL
Childcare boom: PE eyes the $60B childcare industry, leveraging federal funds and demand to drive growth and innovation, transforming retail spaces near malls into thriving centers.
Revamp: RD Management's RITHM project transforms a former mall into a mixed-use development featuring healthcare and tech spaces in Tampa's Uptown District.
Expansion: Costco Wholesale aims to open 30 new stores by fiscal year-end, signaling a return to its pre-pandemic expansion pace.
🏢 OFFICE
Office perks: RXR remains optimistic about office spaces, provided they offer amenities like golf simulators.
A MESSAGE FROM CRE DAILY
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Economic trends: Explore the impact of jobs, wages, and broader economic factors on multifamily investment.
Demographic shifts: Uncover how domestic and international migration is shaping rental demand.
BTR market insights: Gain valuable data and analysis on current rent and occupancy trends, future growth projections, and the BTR premium compared to traditional rentals.
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COLLEGE CONQUEST
Hilton Makes $210M Deal for Graduate Hotels
Hilton Worldwide Holdings (HLT) sealed a $210M deal to acquire Graduate Hotels, aiming to tap into the potential growth opportunity presented by college towns.
About the brand: Graduate Hotels focuses on properties near college campuses across the U.S. and the U.K., offering a unique and community-themed stay experience for guests seeking proximity to campus life. Hilton CEO Chris Nassetta sees an opportunity to expand the brand into a "megabrand" with a potential reach of 400–500 hotels.
Growth trajectory: The acquisition aligns with Hilton's move to target college towns, which they believe are underserved and offer significant growth potential. Graduate Hotel properties, strategically located near universities, cater to events like college sports, reunions, and parents' weekends, driving demand.
Guest experiences: Graduate Hotels differentiate themselves by offering guests an immersive stay experience that reflects the local community. Properties feature themed elements such as a replica of Michael Jordan's UNC dorm room and a bar inspired by the movie "Back to School." The brand focuses on creating nostalgia for guests’ college experiences, which they hope will help build loyalty.
Market potential: Hospitality's interest in college towns is on the rise, driven by factors like booming college sports events and alumni gatherings. Analysts note the high demand and potential for lucrative room rates during major university events, making campus hotels attractive investments. Other industry players, including Travel + Leisure and Study Hotels, are also venturing into the college town segment.
➥ THE TAKEAWAY
Land and expand: Hilton's acquisition of Graduate Hotels presents a strategic opportunity to enter the college town market, enhance guest loyalty, and tap into niche growth potential. By adding Graduate Hotels to its portfolio, Hilton aims to offer a unique guest experience rooted in community themes while capitalizing on the demand driven by college events and alumni relations, broadening Hilton's brand offerings.
📈 CHART OF THE DAY
Oxford Economics' recent growth projections show six Pacific Northwest metros among the U.S.'s top 20 for population increase percentage-wise. This trend, especially notable in Idaho, continues from previous years, elevating housing costs and spurring high apartment demand. In 2023, the Pacific Northwest boasted four areas in the top 10, with Idaho claiming three spots.
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