From The Guardian, September 29:
The Blackstone rebellion: how one country took on the world’s biggest commercial landlordThe giant asset management firm used to target places where people worked and shopped. Then it started buying up people’s homes. In one country, the backlash was ferocious
Blackstone is the largest commercial landlord in history. Over the past two decades, it has quietly taken control of apartment blocks, care homes, student housing, railway arches, film studios, offices, hotels, logistics warehouses and datacentres. Blackstone doesn’t just own real estate, it owns everything – or that’s how it can feel when you start to examine its bewildering array of assets. If you wear Spanx, have ever matched with someone on Bumble, stayed in a Hilton hotel or a CentreParcs resort, visited Legoland, Madame Tussauds, the London Dungeon or an elderly relative at a Southern Cross care home, you have encountered a company that forms, or has recently formed, part of the Blackstone empire.
The New York headquarters of Blackstone are located in a skyscraper on Park Avenue. Every Monday, the firm’s founder Steve Schwarzman and chief operating officer Jon Gray gather with senior partners around a large conference table on the 31st floor to discuss investment memos sent the previous week by teams in the company’s 26 offices in the US, Europe and Asia. It’s here that Blackstone’s investment decisions are made. Last year, the company invested $270bn, bringing the total value of the assets it manages to $881bn, slightly more than the gross domestic product of Switzerland, and more than twice that of Denmark. The Monday meeting resembles an intense seminar whose participants zero in on the weaknesses in proposals that pass before them. Some investments can return to this table three or four times for approval before they’re ultimately killed.
Blackstone is an asset manager, a type of private financial firm that invests the wealth of pension funds and insurance companies. It is not to be confused with BlackRock, an asset management firm founded by Larry Fink, who worked for Blackstone in the 1980s and set up its bond-investment business. In 1994, BlackRock became an independent firm and Blackstone sold its shares in the company. Fink and Schwarzman now work on opposite sides of Park Avenue. Fink’s company dwarfs Blackstone, but when it comes to property, Blackstone is the giant. Its $320bn real estate portfolio is more than six times larger than that of BlackRock. “For Blackstone, real estate is the goose that lays the golden egg,” Brett Christophers, a professor of geography and author of a forthcoming book about the asset management industry, told me.
In the 2000s, Blackstone’s real estate division was known for buying up office spaces and hotels. Now, it seems to prefer life-science laboratories and warehouses rented out to last-mile delivery firms. But it is Blackstone’s interest in another type of real estate that has attracted the most scrutiny. In recent years, it has become known for creating a profitable asset class from residential properties – in other words, buying up homes. Unlike warehouses or office blocks, the principal revenue source in rental homes are the people who live in them. Although Blackstone insists that its top priority is providing a good service, the finance industry’s expectation of increasing returns can seem at odds with the interests of tenants.
In the years before the pandemic, the company presented its “conviction themes” – the areas where it plans to invest – to its largest shareholders at an annual investor meeting. (This event used to be held at the Waldorf Astoria hotel in Manhattan, which Blackstone used to own.) “It was like drinking from a firehose in the world of real estate,” a former Blackstone executive told me of one meeting at the Waldorf. “You could be talking about shopping centres in Shanghai one minute, offices in Seattle the next minute. In that room, you’d probably be more informed about what was happening in the world of real estate than in any other room on the planet.”When Blackstone buys a building – say, an office block in London – employees are dispatched to “walk the asset”, considering its size and location, ceiling height, ventilation, natural light, transport links, the number of lunch spots nearby, how many students, creatives and computer programmers are moving to the area and what other businesses are located there. After employees have visited the site and combed through its paperwork, they gather with colleagues from the firm’s American, European and Asian offices to review and “socialise” the proposed deal. The final step is to secure approval from the real estate investment committee at its Monday meeting. For major acquisitions, senior leaders will fly in from New York to walk the space if they are not yet convinced by its commercial appeal.
This methodical, even cautious, approach to investing has yielded big rewards. Today, the name of Blackstone’s founder can be seen on universities and public institutions across the US. There is a Stephen Schwarzman building at the New York Public Library, a Schwarzman centre at Yale University and the Schwarzman College of Computing in Massachusetts. Soon, the University of Oxford will open the Schwarzman Centre for the Humanities, funded by the largest single donation it has ever received. Yet, beyond the inscription of its founder’s name into buildings and brass plaques, Blackstone is shaping the cities around us in a more profound way.
The company has acquired houses and apartments at a voracious speed in cities around the world. Like any company, Blackstone is focused on creating returns for its investors. Residents in some Blackstone properties have accused it of raising rents while reducing overheads, and the company has even been blamed – by an adviser to the United Nations – of helping to fuel the global housing crisis. (Blackstone vehemently denies these accusations and has previously said that the UN adviser’s findings included “numerous false claims, significant factual errors and inaccurate conclusions”.)
In most places where it began to buy up residential properties, Blackstone faced little opposition from governments or politicians. That is, until it arrived in a small Scandinavian country, which, when confronted with the indifferent force of this global real estate company, decided Blackstone had gone too far. “Blackstone was like a boxer walking into a heavy right-hand hook to the jaw,” Curt Liliegreen, a Danish housing economist, told me. “They didn’t see it coming. They picked totally the wrong place.”....
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