Jonathan Gray, president and chief operating officer of the Blackstone Group Inc., said he expects that over time people will return to office buildings.
“It’s very hard to run businesses remotely,” Mr. Gray said during Blackstone’s second-quarter earnings call July 23. “We think there will be less density. There’s certainly going to be a lot less new construction.”
Blackstone executives think the issues involved in the office and hotel sectors are “cyclical in nature” and there should be good investment opportunities. In the office sector, Blackstone is concentrating on properties for life science, technology and media company studios and offices. For example, Blackstone’s core-plus open-end real estate fund, Blackstone Property Partners, entered into a $1.7 billion transaction in film studios and offices in Hollywood, anchored by content creators Netflix Inc. and Walt Disney Co.
“In retail and closed malls, where we think the challenge is more secular, then we’re going to be more hesitant in putting out capital,” Mr. Gray said.
About 13% of Blackstone’s assets are in hotels and retail properties, he said.
“We don’t have a large number of what we think of as deeply troubled assets,” Mr. Gray said on the earnings call.
The COVID-19 crisis and ensuing recession is accelerating a trend that was already underway: the move to the suburbs from the cities, said Benjamin Adams, CEO of Beachwood, Ohio-based real estate manager Ten Capital Management LLC.
“We have long believed in the structural demographic shift to the exurbs and suburbs,” Mr. Adams said, citing research by William H. Frey, senior fellow, metropolitan policy program, at the Brookings Institution.
Demographic shifts that had stimulated central business district office demand were already reversing, pushing economic activity to suburban and secondary markets, he said.
For instance, more members of Generation X and millennials are expected to have families and move to the suburbs and secondary markets for a lower cost of living and higher quality of life, Mr. Adams said.
Still, the excitement and convenience of big cities cannot be dismissed, he said.
But in the near term, people and companies have been moving to the suburbs and this trend is accelerating across the country, he added.
For example, properties in the suburbs of Philadelphia such as King of Prussia and Malvern have performed better than the center city of Philadelphia because it is less expensive to own and rent an office in the suburbs, Mr. Adams said.
In July, Ten Capital acquired a Class A office building that was 89.2% leased in the Cypress Creek submarket of Broward County, a suburb of Fort Lauderdale and Boca Raton, Fla. Ten Capital executives found more than the typical competition for the property and competition for these types of properties, particularly in the Southeast, will continue to grow, he said.
Even so, Ten Capital executives are not seeing as many investment opportunities as before the pandemic, Mr. Adams said.
“We are wary of any distress coming off the shoots of COVID-19,” he said. “Smart property owners will sell off real estate to protect their gems.”
