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Gray Says Blackstone Bullish on Asia and South America

06/03/2014 | By Allen Kenney

Jonathan Gray

On the opening day of REITWeek 2014, Jonathan Gray, global head of real estate at private-equity firm Blackstone, sat down with Public Storage (NYSE: PSA) chairman and CEO Ronald Havner, Jr. for a wide-ranging discussion of commercial real estate topics. Gray’s remarks covered prospects for different geographic markets and property segments, as well as the overall investment landscape.

Gray said the underlying trends in Asia are “very strong,” although growth seen in the past is unlikely to be repeated. On the other hand, Blackstone has a “very modest view” of growth in Europe over the next few years, Gray added, in part due to ongoing challenges to that region’s financial system. And while Brazil is facing a slowdown, according to Gray, over the longer term Blackstone expects to grow its presence in South America.

Turning to prospects in the United States, growth is finally getting back to a “reasonable level,” said Gray, noting that a “very good” supply-and-demand dynamic still exists. Gray added that over the “fullness of time,” he expects real estate values to correlate more to the supply-and-demand situation.

Gray also discussed the outlook for the single-family home rental market. Blackstone is the largest institutional owner of single-family homes in the country.

Gray described the U.S. housing market as “strong,” noting that first quarter data showed a 12.5 percent increase in home prices. However, he highlighted the weakness that still exists for single-family home prices. He did add that pricing appears to be on the upswing.

Gray said Blackstone’s goal in the single-family rental market is to get the business to a point where investors view it as “straightforward,” which Gray predicted could take upwards of another year.

The hotel sector, meanwhile, is seeing new supply starting to pick up, according to Gray. He said he expects two to three “very good years” for the sector going forward with high occupancy rates and limits on new supply.

In other matters, Gray also noted that debt markets are becoming more competitive, although “it’s not out of hand.” He also warned of a possible “excess of enthusiasm” if interest rates remain low and economic growth picks up.