WEBVTT - Kathleen McCarthy on Real Estate Investments 0:00:02.000 --> 0:00:07.120 This is mesters in business with very results on Bloomberg Radio. 0:00:09.360 --> 0:00:14.280 Scrap yourself in for this one. It's absolutely fascinating. Kathleen 0:00:14.360 --> 0:00:17.600 McCarthy is the global co head of real Estate for 0:00:17.680 --> 0:00:22.400 private equity giant Blackstone. She and her team manages over 0:00:22.960 --> 0:00:27.320 five hundred and sixty five billion dollars in real estate assets. 0:00:27.720 --> 0:00:32.280 And if you are all interested in commercial real estate, 0:00:32.320 --> 0:00:39.199 residential real estate, logistics, warehouse, laboratory and medical facilities, multi 0:00:39.240 --> 0:00:44.120 family and apartments, offices, on and on in the US, 0:00:44.920 --> 0:00:49.879 in Western Europe, in Asia, India, Japan. UH, this is 0:00:50.000 --> 0:00:54.120 just a tour to force education on how to invest 0:00:54.240 --> 0:00:58.280 in global real estate. UH. Blackstone has been in this 0:00:58.360 --> 0:01:03.880 space for over thirty years. According to their ten K filings, 0:01:03.920 --> 0:01:08.279 their opportunistic fund is up sixteen percent a year over 0:01:08.319 --> 0:01:13.280 those thirty year periods. That that's really an astonishing return. 0:01:13.840 --> 0:01:18.319 Kathleen has been with Blackstone since and I just can't 0:01:18.319 --> 0:01:24.560 say enough as to how absolutely fascinating, um and knowledgeable 0:01:24.720 --> 0:01:29.120 and intriguing this conversation is. That you won't hear the 0:01:29.280 --> 0:01:34.319 gaps between her answers and my questions because we edit 0:01:34.360 --> 0:01:38.440 that out. But she answers a question. I'm just sitting 0:01:38.480 --> 0:01:42.520 there dumbfounded by how She's just like, oh my god, 0:01:42.600 --> 0:01:47.520 that's just an absolutely comprehensive explanation about something I had 0:01:47.560 --> 0:01:50.680 no idea about. And now I feel like I really know. 0:01:51.680 --> 0:01:53.880 I don't even know where to begin other than saying, 0:01:53.960 --> 0:01:59.240 strap yourself in. This is a Monster podcast. My conversation 0:01:59.760 --> 0:02:04.920 with Kathleen McCarthy, Global head of real Estate for Blackstone. 0:02:05.240 --> 0:02:09.160 Kathleen McCarthy, Welcome to Bloomberg. I am so excited to 0:02:09.160 --> 0:02:11.079 be here. Mary, So I'm excited to have you here 0:02:11.080 --> 0:02:14.720 because Wow, what perfect timing to talk about real estate. 0:02:16.000 --> 0:02:18.480 Just at the towards the end of the year. Rates 0:02:18.480 --> 0:02:22.079 are going higher, real estate prices are getting a little wobbly, 0:02:22.360 --> 0:02:25.920 and I have a million questions about all of that. 0:02:26.200 --> 0:02:28.400 But before we get to that, let's talk a little 0:02:28.400 --> 0:02:31.920 bit about you and your background. You started your career 0:02:32.120 --> 0:02:34.600 doing M and A at Goldman Sachs. Tell us a 0:02:34.639 --> 0:02:37.760 little bit about that experience. What was that Like, I 0:02:38.240 --> 0:02:40.440 back back up actually a little bit further and thinking 0:02:40.440 --> 0:02:42.200 about how did I get there, because I don't think 0:02:42.280 --> 0:02:45.320 it was very obvious actually that I would come out 0:02:45.320 --> 0:02:48.480 of Yale with an Ethics, Politics and Economics degree perfect 0:02:49.480 --> 0:02:51.880 and end up in M and A on Wall Street. 0:02:52.200 --> 0:02:54.400 But so much, of course for all of us probably 0:02:54.440 --> 0:02:57.000 comes back to those formative years with our families. And 0:02:57.639 --> 0:02:59.520 in my house, I was the oldest of three girls. 0:03:00.120 --> 0:03:02.400 My mom was a high school science teacher in our 0:03:02.400 --> 0:03:06.200 public high school, and my dad worked for a cosmetics company, 0:03:06.560 --> 0:03:09.600 Avon products, you know, like the Al Ladies. And so 0:03:09.680 --> 0:03:11.720 for most of my life, I mean really for all 0:03:11.760 --> 0:03:14.519 my life that I remember his company, and if I 0:03:14.560 --> 0:03:15.960 would go to visit, they have things on the wall 0:03:16.000 --> 0:03:18.560 that says the company for women. He routinely had women 0:03:19.040 --> 0:03:21.280 who were his managers, his bosses, and there was a 0:03:21.400 --> 0:03:23.400 female CEO for a really long period of time. And 0:03:23.440 --> 0:03:26.240 so as people were thinking about, Okay, what do you 0:03:26.280 --> 0:03:29.920 do after college? I was thinking any number of things, 0:03:29.919 --> 0:03:31.600 and mostly that I didn't really know what I wanted 0:03:31.639 --> 0:03:33.240 to be when I grew up. But I was not 0:03:33.440 --> 0:03:37.160 kind of at all informed by gender norms that people 0:03:37.200 --> 0:03:39.840 ask me a lot about now, in particular, how you 0:03:39.840 --> 0:03:41.720 know a woman? How did you think about ending up 0:03:41.720 --> 0:03:43.760 in this page? So how did that color what you 0:03:43.840 --> 0:03:47.840 focused on at college and how you molded your career? Well? 0:03:47.880 --> 0:03:49.800 I thought about when when I thought about college and 0:03:49.800 --> 0:03:51.960 what I did there and why I selected going to Yale. 0:03:52.160 --> 0:03:55.200 It was largely, I think the start of me recognizing 0:03:55.240 --> 0:03:58.680 that I'm a person who loves to learn and loves 0:03:58.720 --> 0:04:04.000 to just keep expanding skills. And so I in college 0:04:04.280 --> 0:04:06.480 did a lot of reading and writing and thinking, it's 0:04:06.520 --> 0:04:08.600 what you do, I guess, with a liberal arts degree. 0:04:09.320 --> 0:04:12.000 And then when I was going to Goldman, there were 0:04:12.040 --> 0:04:14.840 a couple of objectives. I guess. One was wanting to 0:04:14.880 --> 0:04:17.680 be able to pay for my life in New York 0:04:17.800 --> 0:04:21.920 and pay off student loans exactly, and then also build 0:04:21.960 --> 0:04:24.200 a set of skills that could be used anywhere. And 0:04:24.240 --> 0:04:25.839 I wasn't at that point sure if I would end 0:04:25.920 --> 0:04:28.160 up in a corporate role or I would end up 0:04:28.440 --> 0:04:30.359 in the Peace Corps or something like that. And so 0:04:31.000 --> 0:04:34.040 what investment banking I thought offered, and I'd say ultimately 0:04:34.080 --> 0:04:38.080 really delivered, was an experience where you could learn a 0:04:38.080 --> 0:04:42.400 ton of different analytical skills, writing skills for business contexts, 0:04:42.440 --> 0:04:44.760 persuasion skills, you know, the opportunity to be in a 0:04:44.800 --> 0:04:48.320 boardroom watching senior professionals, whether it was the chairman of 0:04:48.320 --> 0:04:50.159 the board or the CEO of the company, or the 0:04:50.160 --> 0:04:53.839 investment bank, or leading your deal, getting to ideas and 0:04:53.880 --> 0:04:57.920 outcomes that were influenced based on information. And so I 0:04:57.960 --> 0:05:00.840 felt that my experience do doing you know, M and 0:05:00.920 --> 0:05:04.359 A Goldman gave me this whole stable of skills that 0:05:04.520 --> 0:05:08.159 set me up for really just about anything. And how 0:05:08.160 --> 0:05:12.000 did you shift into real estate principal investment at at 0:05:12.000 --> 0:05:15.720 Coleman Sex. That seems like a big leap from traditional 0:05:15.839 --> 0:05:18.200 M and A. Well, I would say that probably the 0:05:18.279 --> 0:05:21.800 vast majority of folks who were in my analysts classic Goldman, 0:05:21.880 --> 0:05:24.000 particularly in the merger group, when they were looking for 0:05:24.040 --> 0:05:27.960 their next thing to do, we're looking more towards private equity, 0:05:28.000 --> 0:05:30.200 more traditional private equity, kind of like what my colleagues 0:05:30.360 --> 0:05:34.600 in there are BCP team do, which is investing in companies. 0:05:34.720 --> 0:05:36.640 Some people maybe we're going to hedge funds as well, 0:05:37.000 --> 0:05:40.560 but I'd say overall folks are more kind of corporate oriented, 0:05:41.080 --> 0:05:44.960 you know, investing in companies, and for me that was interesting. 0:05:45.000 --> 0:05:48.280 I definitely wanted to gain investing skills. I found one 0:05:48.320 --> 0:05:50.200 of the things that was a little unsatisfying as a 0:05:50.200 --> 0:05:53.039 merger bankers. You'd you'd work on a transaction, you'd help 0:05:53.040 --> 0:05:55.560 a company buy something or sell something, or merge with 0:05:55.640 --> 0:05:59.120 another business, but then you really never knew whether your 0:05:59.160 --> 0:06:01.440 model was at all close to accurate, how did it 0:06:01.480 --> 0:06:03.400 work out? Ultimately? All of the things you thought were 0:06:03.440 --> 0:06:05.480 going to happen, did it ultimately happen? And so I 0:06:05.560 --> 0:06:07.520 wanted to be part of that kind of follow through. 0:06:07.520 --> 0:06:09.960 And that's why moving to the investment side was interesting 0:06:10.000 --> 0:06:12.880 to me. But I would say when it when it 0:06:12.920 --> 0:06:17.039 came to kind of what part of investing, I think 0:06:17.720 --> 0:06:19.680 being a merger banker did inform what I wanted to 0:06:19.720 --> 0:06:22.920 do next, because when you're doing that every day, you're 0:06:23.200 --> 0:06:26.120 interacting with different clients and different industries and having to 0:06:26.320 --> 0:06:29.120 learn a whole new set of vocabulary, whole new business. 0:06:29.920 --> 0:06:31.839 And I thought, you know, if I want to start 0:06:31.880 --> 0:06:34.839 to be a great investor, and and in particular I 0:06:34.839 --> 0:06:36.719 didn't know this term at the time, but you know, 0:06:36.720 --> 0:06:39.440 Steve Schwartzman were first to as pattern recognition, great investors 0:06:39.440 --> 0:06:42.000 are really great at pattern recognition. You want to start 0:06:42.040 --> 0:06:45.640 building that building expertise. I felt I wanted to move 0:06:45.680 --> 0:06:48.239 into something that was still large and wasn't gonna piehole 0:06:48.279 --> 0:06:50.840 me or pigeonholed me at a very young age in 0:06:50.920 --> 0:06:53.320 my career um but where I could be working in 0:06:53.360 --> 0:06:56.200 and out of a common vovocabulary that could apply across 0:06:56.240 --> 0:06:59.080 all kinds of geographies and asset classes, and real estate 0:06:59.160 --> 0:07:02.600 offered that um. I'd also say, you know, interestingly, when 0:07:02.600 --> 0:07:04.960 I was going to interviews at different private equity firms 0:07:05.000 --> 0:07:08.080 or different real estate firms, it was noticeable that in 0:07:08.120 --> 0:07:12.480 the real estate brochures of those companies, there was a 0:07:12.560 --> 0:07:15.440 huge amount of diversity in the kinds of people that 0:07:15.480 --> 0:07:18.000 worked at these firms. And it was all sorts of 0:07:18.000 --> 0:07:20.920 dimensions of diversity, including kind of the nature of people's degrees. 0:07:21.040 --> 0:07:23.200 You had people who never had a college degree, folks 0:07:23.200 --> 0:07:25.600 who are architects, folks who are lawyers, folks who had 0:07:25.640 --> 0:07:28.040 a more traditional M b A. And And what I 0:07:28.080 --> 0:07:30.679 found was these were all people who were really interested 0:07:30.680 --> 0:07:35.040 in participating in in a people business ultimately, which is 0:07:35.040 --> 0:07:38.440 where do people live and work and shop, and how 0:07:38.600 --> 0:07:41.240 great cities come together and things like that. And I 0:07:41.280 --> 0:07:43.840 really wanted to be attached to those kinds of those people. 0:07:44.120 --> 0:07:46.160 And they're passionate about what they were doing, So so 0:07:46.240 --> 0:07:48.640 let me engage in a little bit of pattern recognition 0:07:49.320 --> 0:07:52.000 M and A. The success of a of a deal 0:07:52.480 --> 0:07:56.360 depends on that structure. The price paid how it is 0:07:56.400 --> 0:08:00.360 structured in terms of upfront costs, ongoing courts, what you getting, 0:08:00.920 --> 0:08:04.679 and real estate in many ways, especially commercial real estate, 0:08:05.120 --> 0:08:07.560 kind of parallels that thing. What are you paying, what's 0:08:07.600 --> 0:08:09.960 the structure of the deal, how is it financed? Am 0:08:09.960 --> 0:08:12.560 I oversimplifying or is that a fair comparison? Now? I 0:08:12.560 --> 0:08:15.520 mean again, there's so many things that carry over from 0:08:15.720 --> 0:08:18.960 one thing to another. Um and interestingly and happy to 0:08:19.000 --> 0:08:22.160 come back to these things I learned in helping companies 0:08:22.160 --> 0:08:26.120 through murders, particularly around things like communications and shareholder relations 0:08:26.200 --> 0:08:29.000 and and employee engagement that have now served me really 0:08:29.040 --> 0:08:31.480 well a couple of decades later in my career. But 0:08:31.560 --> 0:08:35.120 I'd say those are all similar things, whether you're talking 0:08:35.160 --> 0:08:39.480 about companies that make something or companies that own real 0:08:39.600 --> 0:08:42.439 estate or real estate assets. And I'd say, when when 0:08:42.440 --> 0:08:44.920 I think about Blackstone and how we work on our 0:08:44.960 --> 0:08:47.480 transactions and what has served us so well over time, 0:08:48.200 --> 0:08:51.000 it certainly has to do with buying great quality real 0:08:51.080 --> 0:08:52.880 estate and the price we pay for it. A big 0:08:52.880 --> 0:08:54.680 part of it, also, though, is the capital structure you 0:08:54.679 --> 0:08:57.560 set up and is it able to withstand anything that 0:08:57.600 --> 0:08:59.880 can come your way, including tough environments that you might 0:08:59.880 --> 0:09:03.160 not control. So I'm glad you mentioned that, because before 0:09:03.160 --> 0:09:04.920 we get to two thousand and ten and you moved 0:09:04.960 --> 0:09:08.760 to Blackstone, let's talk about a tough environment. You were 0:09:08.760 --> 0:09:12.400 at Goldman Sachs in the real estate division in the 0:09:12.440 --> 0:09:15.560 middle of two thousand and eight two tho nine, right 0:09:15.640 --> 0:09:18.560 through the worst of the financial crisis, so I have 0:09:18.679 --> 0:09:22.000 to ask, what the hell was that like, Well, it 0:09:22.080 --> 0:09:25.920 was definitely a difficult time. Um, I'm not laughing out 0:09:25.920 --> 0:09:27.839 of joy, but out of you know, kind of. It's 0:09:27.840 --> 0:09:32.079 always still a stunner. All of us who were in markets, 0:09:32.080 --> 0:09:34.840 in real estate and derivatives and trading in anything, who 0:09:34.960 --> 0:09:39.199 survived that baptism of fire. People have told me stories 0:09:39.240 --> 0:09:44.320 that they came through that, and that affects you the 0:09:44.360 --> 0:09:47.240 rest of your career. That colors It leaves a mark 0:09:47.360 --> 0:09:50.480 and colors you forever. Well, I would say, I feel 0:09:50.480 --> 0:09:52.880 like in the first decade of my career I actually 0:09:52.880 --> 0:09:56.319 had to somewhat similar experiences in that way, because I 0:09:56.400 --> 0:09:58.400 remember I came out of college three months after the 0:09:58.480 --> 0:10:01.120 dot com rubble burst. So I was sitting at graduation 0:10:01.240 --> 0:10:04.280 and classmates were getting emails saying their offers were rescinded 0:10:04.520 --> 0:10:07.760 because their company was going out of business, and I 0:10:07.800 --> 0:10:10.600 went from again this merger group at Goldman, which was 0:10:11.000 --> 0:10:13.960 focused only on the biggest possible deals, to working on 0:10:14.000 --> 0:10:17.319 what were relatively small transactions but for important clients. Uh. 0:10:17.360 --> 0:10:19.600 And by the way, for me again with a learning agenda, 0:10:19.720 --> 0:10:22.560 there's learning and all of that, but environments change quickly, 0:10:23.240 --> 0:10:26.360 and whether it's the investment you make or you personally, 0:10:26.360 --> 0:10:28.360 it's your ability to kind of keep putting one foot 0:10:28.400 --> 0:10:32.120 in front of the other and move through that. Two 0:10:32.360 --> 0:10:36.360 and ten was a particularly tough and very formative experience, 0:10:36.880 --> 0:10:40.240 and I would say there are so many important lessons 0:10:40.360 --> 0:10:43.680 learned for me. One is an investor, the importance of 0:10:43.679 --> 0:10:48.280 buying super high quality assets, putting resilient capital structures in place, 0:10:48.880 --> 0:10:52.560 having access to reserves so that in a moment where 0:10:52.600 --> 0:10:54.839 you need to invest more capital in your transaction or 0:10:54.880 --> 0:10:57.160 where you need to or you have an opportunity I 0:10:57.160 --> 0:10:59.559 should say, to buy back debt at a discount, being 0:10:59.559 --> 0:11:02.840 able to capitalize on those kinds of opportunities is so important. 0:11:02.880 --> 0:11:05.640 And frankly, we didn't have all those opportunities, and we 0:11:05.640 --> 0:11:10.439 hadn't set ourselves up as well. I really Blackstone meanwhile, 0:11:10.480 --> 0:11:12.480 and we'll get to that had, and that's a big 0:11:12.520 --> 0:11:14.040 part of how Blackstone has been set up for so 0:11:14.120 --> 0:11:16.760 much success in the decades that followed. But let me 0:11:16.840 --> 0:11:19.800 let me interrupt you one second. So everything you described 0:11:19.960 --> 0:11:23.439 are the sorts of things that you would imagine everybody 0:11:24.080 --> 0:11:28.240 should be prepared for. It does, and I'm kind of 0:11:28.280 --> 0:11:33.439 surprised to hear that one of the largest and savvayest 0:11:33.600 --> 0:11:36.640 shops on the street kind of wasn't prepared for it. 0:11:37.720 --> 0:11:41.600 Is that the sort of thing that the lesson we 0:11:41.679 --> 0:11:44.600 learned from it is that the takeaway Obviously, Goldman has 0:11:44.720 --> 0:11:47.960 so many different moving parts, and the derivatives group on 0:11:48.040 --> 0:11:50.880 that side might be working at cross purposes with long 0:11:51.000 --> 0:11:53.960 term real estate investment on this side. So so hold 0:11:53.960 --> 0:11:57.640 that aside. But is the takeaway from the financial crisis 0:11:57.679 --> 0:12:00.600 that you have to be resilient. You have to reserves, 0:12:00.600 --> 0:12:04.040 You have to purchase assets that are robust enough that 0:12:04.080 --> 0:12:06.960 they could withstand a beating, and you have to have 0:12:07.040 --> 0:12:10.400 enough dry powder that when these opportunities come along to 0:12:10.480 --> 0:12:13.680 buy high quality assets at the stress prices, you have 0:12:13.720 --> 0:12:16.400 to be ready to jump. I think you pretty much 0:12:16.440 --> 0:12:19.760 have it, Barry. I mean, I think about for example, 0:12:19.760 --> 0:12:22.360 Blackstones track record. We've been investing in real estate for 0:12:22.400 --> 0:12:24.800 over thirty years and in our opportunistic funds. So these 0:12:24.800 --> 0:12:29.079 are the funds where we're trying to generate higher returns 0:12:29.120 --> 0:12:31.920 for customers in a relatively shorthold period for the assets 0:12:31.960 --> 0:12:35.160 we buy for them. We've had sixteen percent net returns 0:12:35.240 --> 0:12:38.280 on all of the capital we've invested over thirty years 0:12:40.480 --> 0:12:43.040 net net of feedes. Are we gonna get a red 0:12:43.040 --> 0:12:45.160 flag from a compliance or is that an official It's 0:12:45.200 --> 0:12:49.800 in our public statements. So it's our opportunistic real estate strategy. 0:12:50.280 --> 0:12:55.040 Six per a net of fees thirty years. That's an 0:12:55.040 --> 0:12:59.040 amazing it's an amazing return. And when you look across 0:12:59.120 --> 0:13:02.360 that and what you what I always think about is 0:13:03.559 --> 0:13:06.079 there were a lot of different kinds of environments. We 0:13:06.080 --> 0:13:08.280 were investing in things that felt great, things that felt 0:13:08.280 --> 0:13:10.160 really terrible, things that felt good when we bought real 0:13:10.240 --> 0:13:11.880 estate and didn't feel so good a couple of years 0:13:11.920 --> 0:13:14.439 later perhaps. But what you just touched on is what 0:13:14.520 --> 0:13:17.600 I think is most important. You can't control the environment 0:13:17.640 --> 0:13:19.640 you're in, but you can control the decisions you make 0:13:19.920 --> 0:13:22.600 leading up to that and through it, and the things 0:13:22.640 --> 0:13:25.640 that I think really distinguished what we were able to 0:13:25.679 --> 0:13:27.319 do at Blackstone and what got us to the other 0:13:27.360 --> 0:13:29.360 side of the financial crisis in a way most real 0:13:29.440 --> 0:13:33.360 estate investors did not. Were these things good assets, resilient 0:13:33.400 --> 0:13:36.360 capital structures, access to reserves, access to new capital to 0:13:36.400 --> 0:13:39.199 go on the offensive and and take advantage of moments 0:13:39.200 --> 0:13:42.720 where there's there's distress pricing. So Gullman and you're looking 0:13:42.760 --> 0:13:45.360 around at the end of the financial crisis and you're 0:13:45.400 --> 0:13:49.120 aware of, hey, we missed opportunities here. This could have 0:13:49.120 --> 0:13:51.280 been a little tighter, this could have been and you 0:13:51.360 --> 0:13:54.360 run into Blackstone and it's like, Wow, these guys, I 0:13:54.400 --> 0:13:57.000 wish we had that way we were. How do I 0:13:57.000 --> 0:13:59.560 get involved with that? It's it's interesting, it was it 0:13:59.600 --> 0:14:01.040 was a little they came out I think a little 0:14:01.040 --> 0:14:03.280 differently than that. What I would say is I had 0:14:03.559 --> 0:14:06.800 an amazing experience at Goldman, including i'd say the learnings 0:14:06.800 --> 0:14:09.800 that I had an opportunity to access through the financial crisis, 0:14:10.440 --> 0:14:14.600 um particularly getting those up learnings that are relatively early 0:14:14.679 --> 0:14:16.800 part of my career. I think it is so important. 0:14:17.800 --> 0:14:21.680 What really got me thinking about doing something different was 0:14:21.920 --> 0:14:25.200 was just you was I continuing to learn? Was there 0:14:25.200 --> 0:14:28.120 a will to keep investing in real estate? Having had 0:14:28.160 --> 0:14:31.640 some of those traumatic experiences as a firm, and I 0:14:31.680 --> 0:14:33.400 felt like I wanted to make sure I was in 0:14:33.400 --> 0:14:36.040 a place where I personally was not treading water and 0:14:36.040 --> 0:14:39.400 I had an opportunity to keep learning. And I knew 0:14:39.560 --> 0:14:41.640 that I wanted to continue to be in real estate. 0:14:41.720 --> 0:14:46.040 I was not sure exactly in what aspect. And I 0:14:46.080 --> 0:14:49.080 was actually quite surprised when Blackstone reached out to me 0:14:49.240 --> 0:14:52.320 about a role to work with institutional clients do capital 0:14:52.400 --> 0:14:56.000 raising and investor engagement. And I was surprised mostly because 0:14:56.040 --> 0:14:58.840 I had no experience with that at all. I had 0:14:58.880 --> 0:15:01.360 come at Goldman almost all of our capital had come 0:15:01.360 --> 0:15:05.480 from high net worth clients. Also, I had done acquisitions. 0:15:05.480 --> 0:15:10.600 I didn't have investor experience really, UM and what Blackstone 0:15:10.640 --> 0:15:11.960 was just kind of I think looking at it a 0:15:12.000 --> 0:15:15.680 little differently and saying, if there's a person who understands 0:15:15.720 --> 0:15:18.960 real estate and can understand markets, but also can can 0:15:19.560 --> 0:15:21.920 help our clients understand better, what are we doing with 0:15:21.920 --> 0:15:24.440 their capital? Or if they're not yet a client, why 0:15:25.280 --> 0:15:29.160 but we're offering compelling um there could be an interesting 0:15:29.240 --> 0:15:31.720 match there. And I think just generally a feeling like 0:15:32.240 --> 0:15:35.520 wet Blackstone. Our performance was strong through the financial crisis. 0:15:35.760 --> 0:15:38.840 We were able to open doors and keep open doors 0:15:38.840 --> 0:15:42.040 with clients, but it was all about stewarding those relationships 0:15:42.080 --> 0:15:44.800 and how do we do that better? And so what 0:15:44.800 --> 0:15:48.240 what got me ultimately really excited about the Blackstone opportunity 0:15:48.320 --> 0:15:50.200 was not so much that I had any confidence that 0:15:50.240 --> 0:15:52.400 I want to do investor relations or that you know, 0:15:52.440 --> 0:15:54.600 that was going to be my my long term career destiny. 0:15:54.720 --> 0:15:57.200 Was that I wanted to work with these people who 0:15:57.200 --> 0:16:01.160 were really focused on doing a great job, not only 0:16:01.200 --> 0:16:03.680 through the investments they made, but through the interactions they 0:16:03.760 --> 0:16:06.480 created with their clients. And I felt like that move 0:16:06.480 --> 0:16:09.000 would allow me to continue to learn and grow and 0:16:09.160 --> 0:16:11.520 frankly diversify my skill sets, so I'd be better set 0:16:11.600 --> 0:16:13.480 up to be a leader in in a bunch of 0:16:13.480 --> 0:16:15.840 different capacities in the future. So let me ask you 0:16:15.880 --> 0:16:20.920 a very obvious question. You shift from high net worth individuals, 0:16:21.560 --> 0:16:25.280 and no matter how high net worth they are, their individuals, 0:16:25.760 --> 0:16:29.520 they react to markets. They can be emotional. The So 0:16:29.880 --> 0:16:32.400 I remember, I have a vivid recollection. In the midst 0:16:32.680 --> 0:16:36.840 of the financial crisis, the news flow was just re 0:16:37.600 --> 0:16:39.680 and we were on the right side of it, but 0:16:39.840 --> 0:16:43.880 it was so relentlessly negative even people making money in 0:16:43.880 --> 0:16:48.080 the downturn were unhappy. Um. And then you shift to 0:16:48.560 --> 0:16:52.600 institutions that have a much longer time horizon and a 0:16:52.880 --> 0:16:56.960 very different headspace. Even though there are individuals at those 0:16:57.040 --> 0:17:01.840 various endowments, institutions, what have you. How does the energy 0:17:02.000 --> 0:17:05.359 and the vibe and the conversations change. Is it's still 0:17:05.480 --> 0:17:08.199 people or people and they're freaking out, or hey, we 0:17:08.280 --> 0:17:11.960 have a perpetual lifespan and so we don't care about 0:17:12.040 --> 0:17:15.000 next quarter, we care about the next century. Am I 0:17:15.280 --> 0:17:18.640 exaggerating or well? I would say I think for all 0:17:18.720 --> 0:17:22.880 investors of any type, whether it's size or whether you're 0:17:22.880 --> 0:17:26.120 an individual investor or institutional investor, really what matters most 0:17:26.160 --> 0:17:30.240 is performance in the end especially we as a manager, 0:17:30.240 --> 0:17:32.480 if we can show up and say we continue to 0:17:32.520 --> 0:17:36.840 generate great performance on your investments. It could be any 0:17:36.920 --> 0:17:38.359 kind of client on the other side of the table 0:17:38.520 --> 0:17:41.399 that is the most important, That the most important. I 0:17:41.400 --> 0:17:45.760 think that from my perspective, the biggest difference and this 0:17:45.800 --> 0:17:48.280 may evolve over time, but the biggest difference between an 0:17:48.320 --> 0:17:52.080 institutional client, so that state pension plan or charitable foundation 0:17:52.200 --> 0:17:55.040 or university and down in versus an individual investor. I think, 0:17:55.240 --> 0:17:59.200 for the most part, institutional investors have decided that they 0:17:59.240 --> 0:18:01.920 want a knee real estate to be a core position 0:18:01.920 --> 0:18:05.879 in their portfolio in and out of cycles. And that's 0:18:06.119 --> 0:18:10.600 because real estate in strong economies can generate basically very 0:18:10.600 --> 0:18:14.159 strong alpha. In weaker times or in an inflationary environment 0:18:14.160 --> 0:18:17.600 we're in right now, for example, as a real asset 0:18:17.640 --> 0:18:21.399 a hard asset, it preserves value as cost to replace 0:18:21.440 --> 0:18:23.920 those assets go up. It's a cash flowing asset where 0:18:23.920 --> 0:18:26.720 you can remark your rents to market in a in 0:18:26.800 --> 0:18:31.440 a rising cost environment, and so um I think those 0:18:31.480 --> 0:18:35.960 institutional investors are really committed to real estate. Individual investors, 0:18:35.960 --> 0:18:39.720 for the most part, have not yet determined that real 0:18:39.840 --> 0:18:42.919 estate is something they want and need to leave as 0:18:42.960 --> 0:18:44.800 core to their portfolio in and out of cycles. I 0:18:44.840 --> 0:18:47.880 think that is changing, and I think in particular, when 0:18:47.880 --> 0:18:50.200 you look back to environments similar to what we're in now, 0:18:50.240 --> 0:18:53.960 where you see rising interest rates persistent inflation, you think 0:18:54.000 --> 0:18:56.720 about how well real estate has performed in those moments. 0:18:57.440 --> 0:19:01.200 I think individual investors are starting to appreciate how attractive 0:19:01.240 --> 0:19:02.920 this is as a part of their portfolio. But that 0:19:03.000 --> 0:19:06.200 is a different kind of approach to portfolio construction and 0:19:06.320 --> 0:19:09.359 for individual investors. I always run into the when we 0:19:09.600 --> 0:19:12.959 discuss real estate. I find I have to say, stop 0:19:13.080 --> 0:19:17.639 focusing on individual homes. That's just one tiny aspect of 0:19:17.720 --> 0:19:20.840 real estate. You have to think in broader, longer terms 0:19:20.880 --> 0:19:24.880 and commercial sides, not your neighbor's household for thirty less 0:19:24.880 --> 0:19:29.040 than the expected. Let's talk about warehouses, Let's talk about farmland. 0:19:29.119 --> 0:19:32.320 Let's talk about things that it doesn't matter necessarily what 0:19:32.440 --> 0:19:34.959 the economy is doing. People got to eat, goods are 0:19:34.960 --> 0:19:39.040 still being moved around the country. I mean, I think 0:19:39.160 --> 0:19:43.760 separating the for sale residential market from for rent commercial 0:19:43.840 --> 0:19:47.120 real estate, including rental apartments, is so important. These are 0:19:48.040 --> 0:19:50.600 different things, and I think you can't just mark what's 0:19:50.600 --> 0:19:53.840 going on in the single family for sale housing environment 0:19:54.240 --> 0:19:58.240 with what might be happening in warehouses or rental apartment 0:19:58.280 --> 0:20:03.400 complexes or office buildings. Quite quite fascinating. So let's talk 0:20:03.400 --> 0:20:05.560 a little bit about your team that you run. How 0:20:06.000 --> 0:20:09.639 large is the real estate team in Blackstone? The real 0:20:09.720 --> 0:20:13.480 estate team at black Stones about nine people globally. That's 0:20:13.480 --> 0:20:15.400 a big chunk of the phone. It's a big chunk 0:20:15.400 --> 0:20:17.679 of the firm. And I think what what actually that 0:20:17.840 --> 0:20:20.320 under states is the impact we have through all the 0:20:20.359 --> 0:20:23.159 portfolio companies we we own in our funds, So we 0:20:23.200 --> 0:20:27.399 own fifty five portfolio companies, and that really forms a 0:20:27.480 --> 0:20:30.160 huge extension of what we're able to do and then 0:20:30.200 --> 0:20:32.879 also see in terms of people on the ground across 0:20:32.920 --> 0:20:35.600 the world operating in specific real estate sectors and then 0:20:35.640 --> 0:20:38.840 sending back the information they're working with every day. So 0:20:38.960 --> 0:20:42.040 when you say portfolio companies, I immediately think of like 0:20:42.200 --> 0:20:46.520 Bornado or are you talking about specific privately held companies 0:20:46.760 --> 0:20:49.800 who themselves own lots of various commercial real estates. So 0:20:49.880 --> 0:20:53.080 these are specific privately held companies by our funds. So 0:20:53.200 --> 0:20:55.200 and these are companies that for the most part, we 0:20:55.280 --> 0:20:58.760 own and control a hundred percent of the company. And 0:20:59.160 --> 0:21:02.600 sometimes we buy companies and then continue to help grow 0:21:02.680 --> 0:21:05.560 them by new asset acquisitions or just growth in their 0:21:05.560 --> 0:21:09.520 cash flows. In other circumstances, we will build up companies 0:21:09.560 --> 0:21:12.600 through a series of smaller acquisitions. So an example would 0:21:12.600 --> 0:21:15.120 be in the US, were one of the largest owners 0:21:15.160 --> 0:21:18.000 of warehouse properties. We have a company called link Logistics. 0:21:18.000 --> 0:21:21.520 It owns about four hundred million square feet of warehouses. 0:21:22.040 --> 0:21:23.800 That is a company that we have built through a 0:21:23.800 --> 0:21:27.880 series of acquisitions. We identified a world class management team, 0:21:27.920 --> 0:21:29.960 and we said we want to build a great company, 0:21:30.000 --> 0:21:32.639 but we're not doing it through just one acquisition of 0:21:32.640 --> 0:21:34.080 one company. We're going to build it up through a 0:21:34.080 --> 0:21:36.760 series of transactions and the ideas. As the things grow, 0:21:36.840 --> 0:21:40.960 there's massive economies of scale and expertise, and what might 0:21:41.000 --> 0:21:45.359 have been a reasonable investment at one X, when it 0:21:45.400 --> 0:21:48.560