In September, Blackstone, the mammoth alternative investment management company, agreed to sell the economy hotel chain Motel 6 and sister brand Studio 6 to India’s Oyo in an all-cash transaction valued at $525 million. Blackstone had acquired Motel 6 in 2012 from Accor for $1.9 billion and subsequently pursued a steady path toward pure franchising, which helped to generate more than $1 billion in profit over its hold period, the company said.
The compelling return might lead one to suspect Blackstone of investing more heavily in hotel assets and hotel companies. After all, one of Blackstone’s greatest triumphs was its acquisition and divestment of Hilton, which netted it $14 billion when it cycled out of in 2018. Heady numbers, to be sure, but there was scant discussion of hotels during the company’s third-quarter earnings call, a signal that Blackstone has made a shift from hospitality into other higher-demand, high-conviction sectors. These include real estate investment in warehouses, family housing and data centers, which compose around 90% of all of Blackstone’s real estate investments. (In September, Blackstone agreed to acquire AirTrunk, the largest data-center operator in the Asia-Pacific region, for $16 billion. The Blackstone portfolio consists of $70 billion of data centers.)
Blackstone now has $1.1 trillion in assets under management and saw $41 billion of inflows during the quarter, while investing $54 billion of capital at a time when the Federal Reserve has begun to loosen its grip by cutting rates, which is leading to a lower cost of capital.
Blackstone’s advantage is its preternatural ability to find itself ahead of the curve, able to spot trends and movements before they happen and deploy capital into those growth areas. It calls itself a thematic investor. “We’ve spent considerable time on our earnings calls discussing how we see the macro-environment unfold,” said Stephen Schwarzman, co-founder and CEO of Blackstone. Though inflation has been a recurring theme and talking point, Blackstone, Schwarzman said, saw it moderating “more quickly than many other market participants,” paving the way for the Fed to begin cutting interest rates.
“An easing of the cost of capital [is] very positive for Blackstone’s asset values and a catalyst for transaction activity, including deployment and ultimately realizations, which in turn fuel fundraising,” he said. “This is the virtuous cycle that powers our business,” a sentiment reiterated by Jon Gray, president and COO of Blackstone, later in the the earnings call.
To be sure, Blackstone sees this part of the cycle as go-time. Foreseeing it is almost sport for the company, with Schwarzman calling out the “fun in anticipating improving markets.” Blackstone increased its investment pace starting in the fourth quarter of 2023, which coincided with the peak of 10-year treasury yields. “Since then, Blackstone has deployed $123 billion, which doubles the prior-year comparable period. “We’ve been planting the seeds of future value at what we believe is a favorable time in terms of future harvesting,” Schwarzman said.
The Gray Zone
Jon Gray, the heir apparent to Schwarzman and social media face of Blackstone, is one part savant and one part wizard when it comes to investing. Rarely wrong, he makes big bets that tend to pay off. The arsenal of dry powder doesn’t hurt, but, more often than not, Blackstone makes the right choices, prescient decisions that pay off for it and its partners.
“Over the past several quarters, we’ve been advancing along the path we outlined for investors, and as we emerge from the high cost of capital environment, we are pleased to see our business progressing on this path, especially the strong investment performance with broad-based acceleration across the firm,” Gray said.
The path, for now, doesn’t appear to include too much in the way of hospitality. While Gray told analysts that it expects to be a net buyer—and that there are many more buyers now to contend with chasing deals—recently, it’s been a seller within the hotel market, the Motel 6 deal just one example. Earlier this year, Blackstone agreed to sell the Arizona Biltmore, the iconic luxury hotel in Phoenix originally designed by Frank Lloyd Wright, to Henderson Park, a London-based international private equity real estate company, for $705 million or $1 million per key. Blackstone acquired the hotel, which transitioned from Hilton’s Waldorf Astoria Hotels and Resorts to the LXR Hotels & Resorts portfolio, in 2018 for $403 million from Singaporean sovereign wealth fund GIC Pvt. Ltd. The deal closed in early May.
Also in May, Blackstone said it would be selling the Turtle Bay Resort in the North Shore of Oahu for $725 million to Host Hotels & Resorts. The hotel subsequently rebranded as The Ritz-Carlton O‘ahu, Turtle Bay. “This transaction is an excellent outcome for our investors and a testament to Blackstone’s ability, including through the pandemic, to transform iconic, luxury hospitality assets,” said Rob Harper, head of Blackstone Real Estate Asset Management Americas. “The team executed an ambitious business plan, investing significant capital to reposition the resort for long-term success while also adding high-quality jobs on the North Shore.” Blackstone acquired the resort in 2018 for $332 million.
One recent Blackstone sale is a bit baffling given all the encomiums heaped of late upon the extended-stay hotel segment. In September, Blackstone sold the Residence Inn Seattle East/Redmond to Clearview Hotel Capital for $34 million, 30% less than what it bought the hotel for 10 years ago.
Is Blackstone shying away from hospitality in general? “That’s what it appears,” said Michael Belisario, director, senior research analyst, at Baird Equity Research. “Blackstone’s recent real estate bets have been focused on sectors with more favorable secular demand drivers and multi-year tailwinds (e.g., AI and data centers). Hotel and travel-related investments do not have the same longer-term growth outlook that they did several years ago when you could invest in the post-pandemic travel recovery and ‘revenge spending’ thesis.”
Blackstone is still invested in the hospitality industry, including a controlling interest of Great Wolf Resorts and UK’s Village Hotels. In May, Blackstone Mortgage Trust originated financing for the 88-room Rosewood Bermuda, which is owned by Gencom.
Commercial Real Estate Conviction
Blackstone’s accuracy in its hospitality investment pullback may still be undetermined, but it does not mean Gray’s confidence in commercial real estate has waned. “The recovery is underway in commercial real estate and in January we made the call that values in the sector were bottoming,” Gray said. In the first nine months of 2024, Blackstone invested or committed $22 billion in real estate, nearly two and a half times the same period last year. “The combination of lower base rates, lower borrowing spreads and lower new supply makes the direction quite positive for our real estate business,” he said.
And though an election year can oftentimes have a profound impact on investment activity, Gray isn’t convinced that it’s affecting it one way or the other. “I haven’t seen people pulling back from buying; it’s probably delayed a few sales processes, and that should be a good sign for deal activity in terms of relative pickup and activity,” he said. “We’ve now seen borrowing spreads and borrowing costs come down a ton. You’re going to see a pickup in activity. You have all the conditions for more transaction activity.”
Blackstone’s other main focus has been its private-credit platform. It manages the largest third-party, private-credit business in the world, with $432 billion across corporate and real estate credit. “Our farm-to-table approach, which brings investors directly to borrowers, results in a strong value proposition for clients in the insurance channel,” Gray said.
“Now” is not part of the Blackstone ethos. “Next” is more precise. And for the time being, things appear to be sanguine across markets, if you believe Gray. “We’re in the middle of a broad-based recovery in real estate,” he said. “We’re trying to capture as much as possible.”