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I want to start off here with a specific part of your business, with the real estate business, because if you looked across a business, that was really the one place that a scarcity of exit activity really weighed on fee related earnings. Ultimately, the big question is what is it going to take for exits to start rebounding in the property sector.
Well, Shanali, it is great to be with you. Just quickly on the quarter. We think it was another strong quarter because the forward indicators for the business were so positive.
We were super active deploying.
Capital in the quarter fifty three billion dollars invested or committed, which is the busiest quarter for us in two years, and we raised nearly forty billion dollars. What I would say as it relates to the property sector, you know, healing of a market that's been under pressure takes a
bit of time. As you'll recall back at the beginning of the year on our Q four earnings call, and I think on your program, I said that I thought real estate was bottoming and that we would deploy a bunch of capital, and that's exactly what happened.
What we've seen in the Green Street.
Property Report is that asset values have basically bottomed, they've begun to rise a little bit. We've also went out and deployed more than fifteen billion dollars in real estate, and so we're in that process that feels like the global financial crisis. I would say as an exception, by the way, the office market is going to take longer to heal because of the big vacancies. But if you went back then, what we saw was we deployed a lot of capital after the crisis, and then markets start
to come back and you acx it. So it takes a little bit of time, but certainly cost of capital coming down. Borrowing costs have come down a bunch in real estate. If you were borrowing back in the fall, what it cost you maybe eight percent for real estate loan today maybe less than six percent. Ten year treasuries have come down, the CMBs markets reopened, So we just
view this as a process. It takes a bit of time, but the healing has begun and with that you'll see more transaction activity certainly as you get later in this year and into next year. So it doesn't happen overnight, but there are some positive signs for sure.
How do you think about this as it relates to interest rates? Obviously the market is still expecting one, if not two rate cuts this year. How would that start to unlock activity? And do you even think we get that.
Well? I think the FEDS medicine is working.
I think when we look at our portfolio companies every quarter we have several hundred of them, we ask them questions like how difficult is it to hire workers? And this quarter in Q two they said it was the least difficult it's been since the first quarter of twenty two twenty one, So the labor market is cooling. We asked about what do you think wages are going to be a year from today, and the CEO said they
think it'll be up three and a quarter percent. That's the lowest prediction from them that again, we've had in a number of years.
That's very positive.
And then when you look at shelter costs, which are the biggest component of CPI, the data we see on the ground with apartment or single family rents are materially lower than what's in the government data, so that should come down.
So it won't happen.
Necessarily in a straight line, but I think there are a lot of things pointing to the FED being effective here, that inflation's coming down and that will give them air cover to cut once or twice this year.
And for markets it's very helpful. As you know, when you're raising the.
Cost to capital and they took cost to capital from zero to five and a half percent, that really impacts markets. That's beginning to change, and that's the reason why the bank CEOs have been on the last week talking about healthier capital markets. The early stage of this recovery in capital markets. That's obviously quite positive for our business.
John, When you think about the second half of the year, it's interesting the second quarter you are on track here, you increase your pace of investing to the point that you reach the highest levels in two years. But what does the second half bring with so much political and geopolitical risk.
You know, we tend not to focus on those things in the short term because we want to be long term investors, and so if there's uncertainty in the world and it results in better opportunity to invest capital, that's what we want to do. I mean, part of the reason you see us deploying this much capital is because we're investing here sort of ahead of that all clear
sign before rates come down. And so when I look at our deal pipeline, be it in private equity, real estate, our growth business, infrastructure, secondaries.
It's picking up.
I talked about last quarter a bit of the briefcase indicator, and every weekend looking at the Investment Committee memos, they continue to be coming. It feels like deal activity will pick up, not as surprise as the equity markets are stronger, debt costs, the capitals come down, so I think it will be a pretty good environment.
It'll continue to get better.
Inflation coming down is just so important to help really grease the system and have transaction activity pick up.
Beyond the macro story here, there's a lot of political rhetoric out there that could significantly impact your business, starting with the rent caps proposed by the Biden and administration in recent days. How do you see that as impacting the property market if that were to come to light.
Well, I think getting support for something like that at the federal level would not be easy. And the reason is because these policies of rent regulation unfortunately have not been successful. We should start by saying there is a housing affordability crisis in the country, and I understand why elected officials want to try to do something. The challenge is, if you have a shortage of something and you decide to freeze the price of it, it doesn't solve the
underlying problem. If you look in New York and San Francisco, where we've had rent control for decades, those are the places that have the most acute shortage of housing. Because once you freeze the price of it, you tend to get a lot less supply. People invest a lot less in the existing property stock also, and so what's the challenge.
The challenge is, we are not building enough homes. If you went back to when they first started collecting data on housing construction in nineteen fifty nine, we were building twenty percent more housing than we are today. Back then, the US population was about half of what it is today. And this has really been the story since the financial crisis. So we need to look at at zoning regulation, density costs.
We need to do everything possible to stimulate new supply, and unfortunately, if you try to freeze the price of housing, you're going to get the exact opposite. That's what happened in a few cities it's certainly what's happened in European cities with rent regulation. I understand the goal. I just think the way to get there is very different.
Well, what is the way to get there? Isn't the rent still too damn high and it's becoming a bipartis an issue? Really? Even Jdvans brought it up during the course of the Republican National Convention. What would be fixed?
The fix is more supply.
You know, that's the way the capitalistic system works. If we delivered a lot more homes. You know, you look at housing construction in California relative to Texas, and you see what happens when you can add more supply more reasonably. I think we really need to look at the state, city, federal level on how to incentivize new construction. How do we make that a nash goal so more people have a shot to buy homes? There are more apartments being built.
You know, we've seen in the apartment market in the US this year because a bunch of new supply has come on. You know, rental growth has been much lower than it's been in past years, below inflationary levels. Supply demand works. We just need more supply of housing. I think if if we make it a goal to add more supply, that'll happen.
You know.
Beyond the rent story, there's also a large story around trade, both coming out of the Biden White House as well as tariffs being talked about under a potential Trump administration in the future. How would that start to impact business, particularly in the way just yesterday, John, you saw AI related stocks sell off on the prospect of tougher restrictions on Chinese chips. You were very, very much invested in the AI story these days.
Well, I would say in terms of trade overall, if we ended up with with a red sweep, we could see some significant changes. And you have to think about that when you're invested in manufacturing as it relates to chips. I think the one thing all parties agree on is innovation is at the heart of America and our economic growth story. So if things happen around chips with Taiwan, I think elected officials will keep that in mind.
They understand that we need to innovate.
Obviously we need access to the most advanced chips. What's happening in AI data centers a huge area of focus, perhaps our biggest area of focus at the firm that is paid off in an enormous way. Obviously chips are at the heart of that.
So my guess is.
There will be toing and froing, but ultimately US companies will have access to chips.
John, a personal question for you. I know there are different politics inside of Blackstone, of course, but you yourself have been a large Democratic donor, have supported supported President Joe Biden in the past. There are now increasing calls for him to step down from the presidential race and the Batona perhaps, how do you feel.
Well, the president is a good man, he has been a wonderful public servant, and like Speaker Pelosi said, you know, he's gotten the votes in the Democratic primary. This is his decision, but I would hope he considers the really extreme physical toll of this business, of this job, I should say, over the next four and a half years. And so again, his call, but it is a very challenging physical job.
Are you looking to support Kamala Harris instead?
You know, I'm going to wait and see what happens here on the Democratic side. I am a Democrat, but I'm going to let the process play out.
If Trump were to take the office after the November election. What would be the biggest change you think to the economy and markets.
Well, I think there be a couple of them.
Regulatory change could be pretty significant, particularly in the area of m and A and antitrust, which has made deal making a bit more challenging. I think on the energy side, the approach towards hydrocarbons and drilling would change pretty significantly. I still think renewables are a key part of the mix. We've got a real need for power.
If you think about it.
In this country, power demand the last decade or so has been flat. It's now projected to be up forty percent. Part of that is digital infrastructure. Part of that is this manufacturing resurgence that we've seen. So I think we'll see a change in energy policy. And then you talked about it, we could see a different environment for tariffs.
You know, if you think about the election cycle and what we have seen so far, do you have any concerns as a business leader about unrest in this country?
You know, I have a lot of confidence in this country. We have an incredible Madisonian system. We have so many patriotic people on who are Republicans or independents or democrats. I think most people want to see economic prosperity, want their children to have better lives, want the country to be safe and secure.
There to be freedoms.
I really believe ultimately, even though there's a lot more friction social media I think makes it tougher, I actually think people's goals are similar, and I think we'll find a way to get through this.
The events of the last couple of weeks.
Particularly the assassination attempt, was very disturbing. There's no place for that in our country, and I really think we'll find a way to move forward. I have a lot of confidence in this country, and I know our firm does as well.
You know, since so much of the business rebound has been predicated on this idea of lower interest rates, do you worry about what the picture could look like going into twenty twenty five, especially with so many prominent economists warning that a teriff strategy or tax cuts or further tax cuts rather could lead to more inflation. Do you worry that the inflationary or disinflationary story could be interrupted?
Well, I think it's legitimate to be concerned about what happens with deficits over time. By the way, I view it as a bipartisan issue. Both sides have had their hand at this. I think it will require a bipartisan
solution as well. I don't know if that'll happen in twenty twenty five, but I think long term is a country finding solutions to get us back to a better fiscal path That makes a lot of sense, and so I think it's worth looking at how can we get the growth and the debt to come down so it's manageable long term, so it doesn't eat up too much of our budget. I think that should be a goal of this country. There's so many positive things that are happening in terms of innovation. I think it's one area
we've got to focus on. But I think near term it's going to be more about the disinflation that's probably going to drive the ten year treasury as versus let's say the technical supply issues.
Biggest risk going into the end of year, given that you're so positive about their direction of travel.
Well, I think the biggest risk is as rates are at this very elevated level, we see further slowdowns. We've seen unemployment move from three point four to four point one. You know, as companies see deceleration in their businesses, they could get more cautious. You could see more job losses, and you could see a slow down in economic growth that's greater than most people are anticipating.
That would be the risk.
So far, now it feels like we're on this softer landing path and that the FED is going to move to start to cut rates and hopefully they can bring inflation down. Unemployment will maybe go up a bit more, but modestly, and we'll power through this. That would be the hope, but the risk would be that we slow more than expected.