NEW YORK CITY—Top executives within the hotel industry have been preaching the mantra of slow but steady growth for the balance of 2016.
That seems to be the expectation in the larger world of real estate, as well, based on comments from Jon Gray, global head of real estate for the Blackstone Group, made at the recent NYU International Hospitality Industry Investment Conference.
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He said the dynamics seen within the hotel industry are the same across many real estate classes.
“(Real estate is) in a more mature part of its cycle, but again, has favorable supply-demand fundamentals,” Gray said.
He said trouble abroad led U.S. corporations to pull back in the first quarter, leading to a tough business environment, but he said there are still reasons to feel optimistic.
“When you look inside the core U.S. economy, it’s actually doing okay,” Gray said. “Housing in particular is very strong. Banks have seen their balance sheets get to a much healthier place. Technology is doing well. The auto industry is strong.
“So our forecast would be more of the same, slow but steady growth. We have hit a bit of an air pocket, but I don’t think that we foresee a recession in the near future.”
One thing that is driving Gray’s optimism is the strength of foreign investment into the U.S., particularly from China.
“I’m a believer that the more integrated we are as a global economy, the better it is,” Gray said. “I think it creates vested interest. … In fact, foreign investment drives up prices, which leads people to build more existing assets.”
Earlier in the year, company officials confirmed Blackstone’s plans to sell Strategic Hotels & Resorts to China’s Anbang Insurance Group for $6.5 billion.
“I see it as a positive trend, and I see it as a trend that’s still fairly early,” Gray said.
Where to invest
Gray outlined a handful of regions that are ripe for investment. He said his company is looking at “legacy distress” in southern Europe, particularly Spain.
“We’ve been particularly active in the Spanish housing market,” he said. “Prices have fallen a lot, and there’s a lack of new construction. We’re beginning to see a recovery in the Spanish economy.”
He said in Asia, the opportunities for investment have moved from China to India.
“We went into that market back in 2011, when most people were quite negative on India,” Gray said. “As investors, that’s always sort of what we have to do is to look for where there’s more negative sentiment where there’s more opportunity.”
He said that company is benefiting from low energy prices and a favorable government for business.
Blackstone’s hotel plays
Gray said Blackstone has the most faith in the big branding companies, in part because it’s hard to replicate what they do.
“It takes decades to build up customer recognition and relationships,” Gray said. “I think the private market has a better sense than the public market about the value of these businesses.”
Blackstone has investment in Hilton Worldwide Holdings, La Quinta Inns & Suites, and G6 Hospitality. Gray said the company is happy with the performance of its hotel investments, particularly Hilton.
“(There was) a moment in time when everybody thought we’d lost all our money,” Gray said. “And it turned out to be the most profitable private equity investment of all time.”