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Blackstone Vs Brookfield - Let's Stir The Pot (An Allow Me To Bash Brookfield)


BG2008
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Blackstone is like Visa, "everywhere you want to be". BAM is like Discover, pretty darn useful in certain areas, but sometimes sleezy and not exactly in the right places all the time.

 

Can you expand on this analogy a bit?

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Blackstone seems to go to where the puck will eventually be. They've also seemed to do a pretty good job managing their reputation. In the PE world, IMO, BX is in a league of its own. Visa and MasterCard style.

 

Brookfield is no doubt impressive in its own right, but much like Discover, again IMO, it has its limitations, does a poor job managing its reputation(or doesnt care) and probably extends itself at times, in terms of taking on unnecessary risks.

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Blackstone seems to go to where the puck will eventually be. They've also seemed to do a pretty good job managing their reputation. In the PE world, IMO, BX is in a league of its own. Visa and MasterCard style.

 

Brookfield is no doubt impressive in its own right, but much like Discover, again IMO, it has its limitations, does a poor job managing its reputation(or doesnt care) and probably extends itself at times, in terms of taking on unnecessary risks.

 

Isn't the underline a function how things are perceive in a given snapshot in the timeline. The bet that BX made on industrial warehouse seems to be right on the money now, but if we go back to the genesis of that bet, which was probably a decade ago in a much smaller magnitude would have had folks scratching their heads. The obvious bet 15 years ago was to be long office building & malls.

 

Meaning that the malls that BAM is making a bet today, could be perceived differently another 10-15 years from now. After all they are in business of re-purposing them and as long as BAM has enough imagination to see the real estate can be far more than just a mall or can be completely different, than I think we can call that a contrarian bet in the making, which you can participate by using a 10-feet pole, through BAM itself as oppose to BYP.

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Blackstone seems to go to where the puck will eventually be. They've also seemed to do a pretty good job managing their reputation. In the PE world, IMO, BX is in a league of its own. Visa and MasterCard style.

 

Brookfield is no doubt impressive in its own right, but much like Discover, again IMO, it has its limitations, does a poor job managing its reputation(or doesnt care) and probably extends itself at times, in terms of taking on unnecessary risks.

 

Isn't the underline a function how things are perceive in a given snapshot in the timeline. The bet that BX made on industrial warehouse seems to be right on the money now, but if we go back to the genesis of that bet, which was probably a decade ago in a much smaller magnitude would have had folks scratching their heads. The obvious bet 15 years ago was to be long office building & malls.

 

Meaning that the malls that BAM is making a bet today, could be perceived differently another 10-15 years from now. After all they are in business of re-purposing them and as long as BAM has enough imagination to see the real estate can be far more than just a mall or can be completely different, than I think we can call that a contrarian bet in the making, which you can participate by using a 10-feet pole, through BAM itself as oppose to BYP.

 

I dont disagree necessarily. I think one of the most misunderstood aspects of the mall hate is that well placed dirt is well placed dirt. Todays mall doesnt have to be tomorrows. Worst case scenario it costs maybe $15M to demolish a mall and start from scratch. Then you can be whatever you want to be, even a warehouse. Malls in tier 1 cities, especially right off major highways will do just fine IMO. The future will obviously look different, but look at what the inside of a major casino looks like. Shopping, entertainment, rooms/housing, and often office space. Simon and BAM are already doing this.

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I believe BAM was in warehousing/logistics first and sold it to BX or others.  2018 investor day transcript:

 

Maybe to help highlight that in a little more--it's always helpful to have real examples. About five years ago, we looked at industrial logistics warehouses, felt that it was a great place to put capital to work, and so we set up a dissembling a global logistics business through the acquisition of three companies in Europe and the United States. We then spent the next five years building the management team, resetting the focus of the business, selling out of markets that we thought were slower growth, and redeploying capital into higher growth markets. We increased rent by 16% over that period of time. We delivered over 20 million square feet of new development, and then over that same period of time, industrial went from being out of favor, to being probably the most highly sought-after real estate sector today.

 

And there is a consequence, the evaluation of this portfolio increased dramatically. We took advantage of that last year and sold our European platform for about five times what we paid for it originally. And by the end of this year, we'll also have disposed of the U.S. portion of the business as well with a similar result. So, in just five short years, we invested about $300 million into this business, and it will return close to a little over $1 billion to us, which can be redeployed into our other investment activities.

 

Five years is a relatively short time frame, sometimes it moves even quicker, so a couple of years ago, we looked at self-storage and decided this was an attractive sector for us to invest in. Similar to industrial, we assembled a 7 million square foot portfolio through a series of very small acquisitions and grew the portfolio to about 200 assets. Highly sought-after sector in high demand but highly fragmented ownership. And so, institutional investors have a lot of interest in investing in self-storage. There are relatively few portfolios out there for them to invest in scale. And so, what we did was we created this portfolio of 200 assets. We took the hundred assets that were in the markets that we felt offered the least upside. These were in the midwest and southeast, and actually sold them for roughly double what we paid for them as we were assembling this portfolio.

 

And, so today what we own is the remaining 100 assets in the higher growth markets, with zero capital invested in it. And so, obviously that’s going to generate a substantial amount of capital for us over the next couple of years as we continue to build that business up. And so, this is simple, it's repeatable, we often get asked about where we are in the real estate investment cycle. It doesn't matter in a lot of ways when these are the types of plans that you're undertaking. You need to know where you are. You adjust your strategy accordingly, but it doesn't mean that you stop investing when we're able to do these types of things.

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I dont disagree necessarily. I think one of the most misunderstood aspects of the mall hate is that well placed dirt is well placed dirt. Todays mall doesnt have to be tomorrows. Worst case scenario it costs maybe $15M to demolish a mall and start from scratch. Then you can be whatever you want to be, even a warehouse. Malls in tier 1 cities, especially right off major highways will do just fine IMO. The future will obviously look different, but look at what the inside of a major casino looks like. Shopping, entertainment, rooms/housing, and often office space. Simon and BAM are already doing this.

 

Sure yo can covert mall space into offices, but offices have problems already. Using them as logistics hubs would work too, but that would be a lesser use and imply much lower rents.  I think the eine closed malls are going to have a tough time, outdoors/ open air super centers are going to have a much better performance both short term and longer term.

 

I could see a monster mall like the Roosevelt mall in LI becoming a tear down eventually.

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This is a great topic actually.  Personally I've allocated to BAM vs. BX - as BAM is cheaper IMHO, and better hands-on operators.  Way better credit (oaktree), infrastructure and renewable businesses vs BX.  Yes, they are over-allocated to retail and office....that is a sore spot for sure.  BAM insider ownership = $10B, while BX is sub-$1B.  In fact: Jon Gray (co-president) only owns $75M w/of stock. 

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FT: Blackstone skips payment on $274m hotel loan

World’s biggest alternative asset manager pledges to work with lenders on ‘best possible outcome’

 

Blackstone has skipped a payment on a $274m hotel loan, joining the ranks of leading real estate investors that have fallen behind on debt during the coronavirus crisis.

 

The debt is secured on four hotels in Chicago, Philadelphia, Boston and San Francisco, which the US private equity group acquired in 2016 from Club Quarters, a membership-based hotel network that continues to operate the properties.

 

Blackstone made contact with the loan administrator in April to request “various modifications and forebearances”, according to a report distributed to credit market investors, which added that the properties were closed, and the loan was delinquent.

 

On Friday, Blackstone characterised the hotel deal as “a very small investment that had been written down prior to Covid-19 as a result of unique operational challenges”. It added: “We will continue to work with our lenders and the hotel management company to create the best possible outcome under the circumstances for all parties, including the employees.”

 

Some of the debt is trading at values that suggest the investors do not expect to make a full recovery. For example, the lowest-rated portion of the loan secured on the Blackstone hotels changes hands for 76 cents on the dollar, down from 100 cents at the start of March.

 

The US travel industry has been among the hardest hit by the coronavirus pandemic. Hotels emptied out as state and local governments tried to curtail the spread of the virus. Nearly a quarter of hotel loans packaged into commercial mortgage-backed securities, or CMBS, were past due in June, according to data provider Trepp.

 

Other badly affected sectors include healthcare and retail, with painful consequences for real estate investors that include some of America’s most prominent asset managers.

 

Colony Capital, the real estate investment group founded by Tom Barrack, said in May that its portfolio companies had defaulted on $3.2bn of debt secured by a portfolio of properties that includes nursing homes and hotels.

 

Brookfield, the Canadian investment group that ranks among the biggest owners of American shopping malls, has also skipped payments on its mortgages and asked lenders for forbearance.

 

Blackstone’s missed loan payment is a setback for the world’s biggest alternative asset manager, which has pointed to the diversity of its portfolio and its focus on sectors that have been relatively resilient during the coronavirus shutdown.

 

“Approximately 80 per cent of the [real estate] portfolio is comprised of logistics, high-quality office and residential assets,” Jon Gray, Blackstone’s chief operating officer, said in April. He added that logistics properties, which are a vital link in the growing businesses of online retailers such as Amazon, were “the most dominant theme”.

 

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I believe BAM was in warehousing/logistics first and sold it to BX or others.  2018 investor day transcript:

 

Maybe to help highlight that in a little more--it's always helpful to have real examples. About five years ago, we looked at industrial logistics warehouses, felt that it was a great place to put capital to work, and so we set up a dissembling a global logistics business through the acquisition of three companies in Europe and the United States. We then spent the next five years building the management team, resetting the focus of the business, selling out of markets that we thought were slower growth, and redeploying capital into higher growth markets. We increased rent by 16% over that period of time. We delivered over 20 million square feet of new development, and then over that same period of time, industrial went from being out of favor, to being probably the most highly sought-after real estate sector today.

 

And there is a consequence, the evaluation of this portfolio increased dramatically. We took advantage of that last year and sold our European platform for about five times what we paid for it originally. And by the end of this year, we'll also have disposed of the U.S. portion of the business as well with a similar result. So, in just five short years, we invested about $300 million into this business, and it will return close to a little over $1 billion to us, which can be redeployed into our other investment activities.

 

Five years is a relatively short time frame, sometimes it moves even quicker, so a couple of years ago, we looked at self-storage and decided this was an attractive sector for us to invest in. Similar to industrial, we assembled a 7 million square foot portfolio through a series of very small acquisitions and grew the portfolio to about 200 assets. Highly sought-after sector in high demand but highly fragmented ownership. And so, institutional investors have a lot of interest in investing in self-storage. There are relatively few portfolios out there for them to invest in scale. And so, what we did was we created this portfolio of 200 assets. We took the hundred assets that were in the markets that we felt offered the least upside. These were in the midwest and southeast, and actually sold them for roughly double what we paid for them as we were assembling this portfolio.

 

And, so today what we own is the remaining 100 assets in the higher growth markets, with zero capital invested in it. And so, obviously that’s going to generate a substantial amount of capital for us over the next couple of years as we continue to build that business up. And so, this is simple, it's repeatable, we often get asked about where we are in the real estate investment cycle. It doesn't matter in a lot of ways when these are the types of plans that you're undertaking. You need to know where you are. You adjust your strategy accordingly, but it doesn't mean that you stop investing when we're able to do these types of things.

 

Which sub did this fall under?  Infrastructure? Property? PE?  I'm trying to remember but can't place it.

 

 

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