Kathleen McCarthy on Real Estate Investments

And if you are all interested in commercial real estate, residential real estate, logistics, warehouse, laboratory and medical facilities, multi family and apartments, offices, on and on in the US, in Western Europe, in Asia, India, Japan. UH, this is just a tour to force education on how to invest in global real estate. UH. Blackstone has been in this space for over thirty years. According to their ten K filings, their opportunistic fund is up sixteen percent a year over

those thirty year periods. That that's really an astonishing return. Kathleen has been with Blackstone since and I just can't say enough as to how absolutely fascinating, um and knowledgeable and intriguing this conversation is. That you won't hear the gaps between her answers and my questions because we edit that out. But she answers a question. I'm just sitting there dumbfounded by how She's just like, oh my god, that's just an absolutely comprehensive explanation about something I had

no idea about. And now I feel like I really know. I don't even know where to begin other than saying, strap yourself in. This is a Monster podcast. My conversation with Kathleen McCarthy, Global head of real Estate for Blackstone. Kathleen McCarthy, Welcome to Bloomberg. I am so excited to be here. Mary, So I'm excited to have you here because Wow, what perfect timing to talk about real estate.

Just at the towards the end of the year. Rates are going higher, real estate prices are getting a little wobbly, and I have a million questions about all of that. But before we get to that, let's talk a little bit about you and your background. You started your career doing M and A at Goldman Sachs. Tell us a

little bit about that experience. What was that Like, I back back up actually a little bit further and thinking about how did I get there, because I don't think it was very obvious actually that I would come out of Yale with an Ethics, Politics and Economics degree perfect and end up in M and A on Wall Street. But so much, of course for all of us probably comes back to those formative years with our families. And in my house, I was the oldest of three girls.

My mom was a high school science teacher in our public high school, and my dad worked for a cosmetics company, Avon products, you know, like the Al Ladies. And so for most of my life, I mean really for all my life that I remember his company, and if I would go to visit, they have things on the wall that says the company for women. He routinely had women who were his managers, his bosses, and there was a

female CEO for a really long period of time. And so as people were thinking about, Okay, what do you do after college? I was thinking any number of things, and mostly that I didn't really know what I wanted to be when I grew up. But I was not kind of at all informed by gender norms that people ask me a lot about now, in particular, how you know a woman? How did you think about ending up in this page? So how did that color what you focused on at college and how you molded your career? Well?

I thought about when when I thought about college and what I did there and why I selected going to Yale. It was largely, I think the start of me recognizing that I'm a person who loves to learn and loves to just keep expanding skills. And so I in college did a lot of reading and writing and thinking, it's what you do, I guess, with a liberal arts degree. And then when I was going to Goldman, there were

a couple of objectives. I guess. One was wanting to be able to pay for my life in New York and pay off student loans exactly, and then also build a set of skills that could be used anywhere. And I wasn't at that point sure if I would end up in a corporate role or I would end up

in the Peace Corps or something like that. And so what investment banking I thought offered, and I'd say ultimately really delivered, was an experience where you could learn a ton of different analytical skills, writing skills for business contexts, persuasion skills, you know, the opportunity to be in a boardroom watching senior professionals, whether it was the chairman of the board or the CEO of the company, or the investment bank, or leading your deal, getting to ideas and

outcomes that were influenced based on information. And so I felt that my experience do doing you know, M and A Goldman gave me this whole stable of skills that set me up for really just about anything. And how did you shift into real estate principal investment at at

Coleman Sex. That seems like a big leap from traditional M and A. Well, I would say that probably the vast majority of folks who were in my analysts classic Goldman, particularly in the merger group, when they were looking for their next thing to do, we're looking more towards private equity, more traditional private equity, kind of like what my colleagues in there are BCP team do, which is investing in companies.

Some people maybe we're going to hedge funds as well, but I'd say overall folks are more kind of corporate oriented, you know, investing in companies, and for me that was interesting. I definitely wanted to gain investing skills. I found one of the things that was a little unsatisfying as a

merger bankers. You'd you'd work on a transaction, you'd help a company buy something or sell something, or merge with another business, but then you really never knew whether your model was at all close to accurate, how did it work out? Ultimately? All of the things you thought were going to happen, did it ultimately happen? And so I wanted to be part of that kind of follow through. And that's why moving to the investment side was interesting

to me. But I would say when it when it came to kind of what part of investing, I think being a merger banker did inform what I wanted to do next, because when you're doing that every day, you're interacting with different clients and different industries and having to learn a whole new set of vocabulary, whole new business.

And I thought, you know, if I want to start to be a great investor, and and in particular I didn't know this term at the time, but you know, Steve Schwartzman were first to as pattern recognition, great investors are really great at pattern recognition. You want to start

building that building expertise. I felt I wanted to move into something that was still large and wasn't gonna piehole me or pigeonholed me at a very young age in my career um but where I could be working in and out of a common vovocabulary that could apply across all kinds of geographies and asset classes, and real estate

offered that um. I'd also say, you know, interestingly, when I was going to interviews at different private equity firms or different real estate firms, it was noticeable that in the real estate brochures of those companies, there was a huge amount of diversity in the kinds of people that worked at these firms. And it was all sorts of dimensions of diversity, including kind of the nature of people's degrees.

You had people who never had a college degree, folks who are architects, folks who are lawyers, folks who had a more traditional M b A. And And what I found was these were all people who were really interested in participating in in a people business ultimately, which is where do people live and work and shop, and how great cities come together and things like that. And I really wanted to be attached to those kinds of those people.

And they're passionate about what they were doing, So so let me engage in a little bit of pattern recognition M and A. The success of a of a deal depends on that structure. The price paid how it is structured in terms of upfront costs, ongoing courts, what you getting, and real estate in many ways, especially commercial real estate, kind of parallels that thing. What are you paying, what's the structure of the deal, how is it financed? Am

I oversimplifying or is that a fair comparison? Now? I mean again, there's so many things that carry over from one thing to another. Um and interestingly and happy to come back to these things I learned in helping companies through murders, particularly around things like communications and shareholder relations and and employee engagement that have now served me really

well a couple of decades later in my career. But I'd say those are all similar things, whether you're talking about companies that make something or companies that own real estate or real estate assets. And I'd say, when when I think about Blackstone and how we work on our transactions and what has served us so well over time, it certainly has to do with buying great quality real

estate and the price we pay for it. A big part of it, also, though, is the capital structure you set up and is it able to withstand anything that can come your way, including tough environments that you might not control. So I'm glad you mentioned that, because before we get to two thousand and ten and you moved

to Blackstone, let's talk about a tough environment. You were at Goldman Sachs in the real estate division in the middle of two thousand and eight two tho nine, right through the worst of the financial crisis, so I have to ask, what the hell was that like, Well, it was definitely a difficult time. Um, I'm not laughing out of joy, but out of you know, kind of. It's always still a stunner. All of us who were in markets, in real estate and derivatives and trading in anything, who

survived that baptism of fire. People have told me stories that they came through that, and that affects you the rest of your career. That colors It leaves a mark and colors you forever. Well, I would say, I feel like in the first decade of my career I actually had to somewhat similar experiences in that way, because I remember I came out of college three months after the

dot com rubble burst. So I was sitting at graduation and classmates were getting emails saying their offers were rescinded because their company was going out of business, and I went from again this merger group at Goldman, which was focused only on the biggest possible deals, to working on

what were relatively small transactions but for important clients. Uh. And by the way, for me again with a learning agenda, there's learning and all of that, but environments change quickly, and whether it's the investment you make or you personally, it's your ability to kind of keep putting one foot in front of the other and move through that. Two and ten was a particularly tough and very formative experience, and I would say there are so many important lessons

learned for me. One is an investor, the importance of buying super high quality assets, putting resilient capital structures in place, having access to reserves so that in a moment where you need to invest more capital in your transaction or where you need to or you have an opportunity I should say, to buy back debt at a discount, being able to capitalize on those kinds of opportunities is so important. And frankly, we didn't have all those opportunities, and we

hadn't set ourselves up as well. I really Blackstone meanwhile, and we'll get to that had, and that's a big part of how Blackstone has been set up for so much success in the decades that followed. But let me let me interrupt you one second. So everything you described are the sorts of things that you would imagine everybody should be prepared for. It does, and I'm kind of surprised to hear that one of the largest and savvayest shops on the street kind of wasn't prepared for it.

Is that the sort of thing that the lesson we learned from it is that the takeaway Obviously, Goldman has so many different moving parts, and the derivatives group on that side might be working at cross purposes with long term real estate investment on this side. So so hold that aside. But is the takeaway from the financial crisis

that you have to be resilient. You have to reserves, You have to purchase assets that are robust enough that they could withstand a beating, and you have to have enough dry powder that when these opportunities come along to buy high quality assets at the stress prices, you have to be ready to jump. I think you pretty much have it, Barry. I mean, I think about for example, Blackstones track record. We've been investing in real estate for

over thirty years and in our opportunistic funds. So these are the funds where we're trying to generate higher returns for customers in a relatively shorthold period for the assets we buy for them. We've had sixteen percent net returns on all of the capital we've invested over thirty years net net of feedes. Are we gonna get a red flag from a compliance or is that an official It's in our public statements. So it's our opportunistic real estate strategy.

Six per a net of fees thirty years. That's an amazing it's an amazing return. And when you look across that and what you what I always think about is there were a lot of different kinds of environments. We were investing in things that felt great, things that felt really terrible, things that felt good when we bought real estate and didn't feel so good a couple of years later perhaps. But what you just touched on is what

I think is most important. You can't control the environment you're in, but you can control the decisions you make leading up to that and through it, and the things that I think really distinguished what we were able to do at Blackstone and what got us to the other side of the financial crisis in a way most real estate investors did not. Were these things good assets, resilient capital structures, access to reserves, access to new capital to go on the offensive and and take advantage of moments

where there's there's distress pricing. So Gullman and you're looking around at the end of the financial crisis and you're aware of, hey, we missed opportunities here. This could have been a little tighter, this could have been and you run into Blackstone and it's like, Wow, these guys, I wish we had that way we were. How do I get involved with that? It's it's interesting, it was it was a little they came out I think a little

differently than that. What I would say is I had an amazing experience at Goldman, including i'd say the learnings that I had an opportunity to access through the financial crisis, um particularly getting those up learnings that are relatively early part of my career. I think it is so important. What really got me thinking about doing something different was was just you was I continuing to learn? Was there

a will to keep investing in real estate? Having had some of those traumatic experiences as a firm, and I felt like I wanted to make sure I was in a place where I personally was not treading water and I had an opportunity to keep learning. And I knew that I wanted to continue to be in real estate. I was not sure exactly in what aspect. And I was actually quite surprised when Blackstone reached out to me about a role to work with institutional clients do capital

raising and investor engagement. And I was surprised mostly because I had no experience with that at all. I had come at Goldman almost all of our capital had come from high net worth clients. Also, I had done acquisitions.

I didn't have investor experience really, UM and what Blackstone was just kind of I think looking at it a little differently and saying, if there's a person who understands real estate and can understand markets, but also can can help our clients understand better, what are we doing with their capital? Or if they're not yet a client, why but we're offering compelling um there could be an interesting match there. And I think just generally a feeling like

wet Blackstone. Our performance was strong through the financial crisis. We were able to open doors and keep open doors with clients, but it was all about stewarding those relationships and how do we do that better? And so what what got me ultimately really excited about the Blackstone opportunity was not so much that I had any confidence that I want to do investor relations or that you know, that was going to be my my long term career destiny.

Was that I wanted to work with these people who were really focused on doing a great job, not only through the investments they made, but through the interactions they created with their clients. And I felt like that move would allow me to continue to learn and grow and frankly diversify my skill sets, so I'd be better set up to be a leader in in a bunch of different capacities in the future. So let me ask you

a very obvious question. You shift from high net worth individuals, and no matter how high net worth they are, their individuals, they react to markets. They can be emotional. The So I remember, I have a vivid recollection. In the midst of the financial crisis, the news flow was just re and we were on the right side of it, but it was so relentlessly negative even people making money in the downturn were unhappy. Um. And then you shift to institutions that have a much longer time horizon and a

very different headspace. Even though there are individuals at those various endowments, institutions, what have you. How does the energy and the vibe and the conversations change. Is it's still people or people and they're freaking out, or hey, we have a perpetual lifespan and so we don't care about next quarter, we care about the next century. Am I

exaggerating or well? I would say I think for all investors of any type, whether it's size or whether you're an individual investor or institutional investor, really what matters most is performance in the end especially we as a manager, if we can show up and say we continue to generate great performance on your investments. It could be any kind of client on the other side of the table

that is the most important, That the most important. I think that from my perspective, the biggest difference and this may evolve over time, but the biggest difference between an institutional client, so that state pension plan or charitable foundation or university and down in versus an individual investor. I think, for the most part, institutional investors have decided that they want a knee real estate to be a core position

in their portfolio in and out of cycles. And that's because real estate in strong economies can generate basically very strong alpha. In weaker times or in an inflationary environment we're in right now, for example, as a real asset a hard asset, it preserves value as cost to replace those assets go up. It's a cash flowing asset where you can remark your rents to market in a in a rising cost environment, and so um I think those

institutional investors are really committed to real estate. Individual investors, for the most part, have not yet determined that real estate is something they want and need to leave as core to their portfolio in and out of cycles. I think that is changing, and I think in particular, when you look back to environments similar to what we're in now, where you see rising interest rates persistent inflation, you think about how well real estate has performed in those moments.

I think individual investors are starting to appreciate how attractive this is as a part of their portfolio. But that is a different kind of approach to portfolio construction and for individual investors. I always run into the when we discuss real estate. I find I have to say, stop focusing on individual homes. That's just one tiny aspect of real estate. You have to think in broader, longer terms and commercial sides, not your neighbor's household for thirty less

than the expected. Let's talk about warehouses, Let's talk about farmland. Let's talk about things that it doesn't matter necessarily what the economy is doing. People got to eat, goods are still being moved around the country. I mean, I think separating the for sale residential market from for rent commercial

real estate, including rental apartments, is so important. These are different things, and I think you can't just mark what's going on in the single family for sale housing environment with what might be happening in warehouses or rental apartment complexes or office buildings. Quite quite fascinating. So let's talk a little bit about your team that you run. How large is the real estate team in Blackstone? The real estate team at black Stones about nine people globally. That's

a big chunk of the phone. It's a big chunk of the firm. And I think what what actually that under states is the impact we have through all the portfolio companies we we own in our funds, So we own fifty five portfolio companies, and that really forms a huge extension of what we're able to do and then also see in terms of people on the ground across the world operating in specific real estate sectors and then

sending back the information they're working with every day. So when you say portfolio companies, I immediately think of like Bornado or are you talking about specific privately held companies who themselves own lots of various commercial real estates. So these are specific privately held companies by our funds. So and these are companies that for the most part, we

own and control a hundred percent of the company. And sometimes we buy companies and then continue to help grow them by new asset acquisitions or just growth in their cash flows. In other circumstances, we will build up companies through a series of smaller acquisitions. So an example would be in the US, were one of the largest owners of warehouse properties. We have a company called link Logistics. It owns about four hundred million square feet of warehouses.

That is a company that we have built through a series of acquisitions. We identified a world class management team, and we said we want to build a great company, but we're not doing it through just one acquisition of one company. We're going to build it up through a

series of transactions and the ideas. As the things grow, there's massive economies of scale and expertise, and what might have been a reasonable investment at one X, when it becomes a hundred X, it becomes a very very different experience. I would say yes, And I think one of the things that's so important about the scale of these businesses and the scale of our business together across all of these companies and our funds, is that we have a

huge information advantage. We get data, real time, proprietary to us constantly coming off these businesses, and it really helps us make better decisions and you otherwise would be able

to do if you didn't have access to this. And so rather than wait for a research report to tell us what's really happening in apartment rent growth or in new leases for warehouses in Northern Europe, we're getting those data points real time and that can help us inform on whether we're going to buy more of something I want to sell something, pivot, how we're managing assets and those are all just important decision making tools for us.

You know, so much of what our work is is not just buying the real estate, but it's all about what is the value we can create? How can we grow cash flows? That's that's most most of the time, how you make money in real estate is growing the cash flow and those those data points coming from all across the world, and what's really happening in these assets,

how our tenants making decisions help inform those strategies. I have heard from a variety of different companies that they're in internal data creation and analytics is just a huge thing. Used to take like a year or two. You get reports out back from the field, what's selling, what's not selling,

what's rising. Now it's almost real time, it's almost instant. Yeah, we we definitely benefit from that, and I think we have the good fortune that there's there's been a heritage kind of from day one of using insights that we uniquely have access to, and the technology infrastructure around that has definitely improved. It's needed to improve at our scale for us to really be able to use all that information.

But I think even just twelve or so years ago when I joined the firm, you'd have senior professionals with legal pads taking notes and meeting sal who what what did we what do we what do we just learn from that sale? Or how many people are in our process? What do they want to pay? You know? And and using those notes to kind of inform the thinking around

next investment choices. Not exactly cutting edge, not exactly cutting edge, but I think this is one of the things that is so special about not just the real safe business of Black So, but really about our whole firm is the way we not only use data provided to us through tools, but also we're in constant conversation. I mean,

we are a meeting heavy culture. We are a conversation heavy culture, and so much of that is about harnessing information and insights people have that can help make those decisions. And it's how we've built our investment committee process one global investment committee, or you're drawing in insights and expertise from around the world. It's just trying to say, Okay, we have access to advantages through information that others may not, and let's use that rather than kind of risk that

that just stays on the sideline. That's really interesting. So SO let's talk about market timing. You're a fantastic market time and what I mean by that is you joined Blackstone right at the tail end of the financial crisis when real estate was the worst that's been in decades, and from there you've had the wind at you're back

for a dozen years. I have to ask a silly question, how much of what's happened the past twelve years has just been spectacular timing and how much of it is just recognizing, Hey, things are very cheap, financing isn't expensive. Now is the time to get aggressive? Well, I would say timing can matter, and we're definitely in a moment where we think dislocation in the market is going to create interesting buying opportunities at values that are going to

feel like very attractive basis. But in the future or are we there yet? We're not there yet. We're getting there, but not quite there yet. I'd say, seventh inning, I don't know, I'm really bad. I want you to tell me Tuesday at the truck If I knew that, I would turn that with you, Barry Um. But you know, I would say, on the on the general idea of like market timing, it can be helpful, of course, to pick a really interesting moment to enter a market by

a company by bineid. I would say, though, if you look at the history of Blacks on real estate, some of our best investments were made at the worst post, of course. I mean Hilton Hotels is always the example we give. You could argue buying that in two thousand seven was the worst possible time. But going back to what we were talking about earlier, we bought a great company. No, no, we would, we took we took the company private. It

was definitely not a distressed company. But what we were excited about was the ability to grow the company and really capitalize on its ability to to grow in a capital light way, and by bringing in an incredible management team led by Christmas Setta, we were able to help propel the growth and we were excited about that from

day one. Probably the time. Well, we then hit the financial crisis and there were a lot of really dark days and I think if we we did probably an article search right now, you have found a lot of prognosticators in two thousand eight nine in ten saying this was this was going to be a you know, a terrible black spot for us, and goes back to exactly what you said by robust properties and a good structure that can tolerate and if it survived that hurricane, right

and if in the most profitable private equity investment ever made. And so that's why again buying in in more distressed environments definitely helpful, but it's not really the only way

to find success, I think, in anything. And to your question about when I joined Blackstone and what's what's been happening, the way I think about the last twelve years for me and for our business, it's really that story of what happened coming out of the financial crisis and the fact that during that period of time, most real estate companies struggled to return capital to their investors, let alone generate a profit, and black Stones funds to that period

generated substantial profits because we had made those good choices not just about the investments, but the capital structures, about

the reserves, about having dry powder. And when we got to the other side of the financial crisis, our clients really trusted us to start doing more for them than just those opportunistic funds I was talking about, and that has given us an opportunity to serve more clients and with more products that acts as more parts of the real estate market it than just those opportunistic strategies I

talked about. I have used the phrase financial crisis PTSD and in no way being disrespectful to people who actually suffer PTSD in combat or whatever. But everybody who came through that felt felt the use the phrase trauma. But you're now saying something even more interesting, which is when you come through that intact and demonstrating an ability to navigate that environment for your clients. At that point, hey,

we want to go pedal to the metal. They open up the floodgates and say, if you survive that craziness in a normal economy, whatever you say, go with it. How does the trust that's built up over that time get get put to use following a crisis like the GFC. Well, I'd say, um, you're really in two ways. One is

that our clients have given us more capital. And I think many clients came through the GFC deciding rather than sprinkle their investments around with a lot of managers, they want to do more with their more successful managers, and we've definitely been a beneficiary of that. I think that trust has also allowed us, like I said, to expand into different types of real estates. So really, so much of our focus today is on growing and expanding our

core plus business. This is real estate that has a very stable cash flow profile where we're able to generate compounding returns over time by adding value in assets that we want to own for a long periods of time and structures that allow us to do that. And we've done that more and more for institutional clients. We've expanded to doing that also for individual clients. And it's really that trust from the good performance in tougher environments and

really any environment that allows us to do that. So I want to put a little context around the five sixty five billion in commercial real estate assets that you guys own globally. What is the real estate market? Some thing like it's like three times at It's like yeah. And that's because where I was leading to is, hey, at what point does this get too big? At what

points are you picking b deals or sea deals? Three hundred trillion versus half a trillion, I'm assuming that means you have a ton of head room to just keep

growing this. That's how we feel about it. I mean, the real estate market is so widely held, it's in so many places, there's so many different opportunities and interestingly, we should come back to this, but the opportunities change, right and based on kind of how people are using assets, and so we feel like there are plenty of opportunities that we can create. And I'd say again, our capital also is structured in a way that we're never under pressure to deploy capital and then sit in cash and

nobody complains. And this is this is part of the trust, right is the is the structure the investors give you in terms of the flexibility of when you draw their capital to deploy into opportunities and what those look like. We have a lot of flexibility in our capital to move across sectors, to move across geographies, to wait to deploy the capital that they've committed until we find great opportunities. That's that's all a relationship built on trust. But it

also means that we can be patient. So do you do, Hey, someone says I'm gonna give you a billion dollars, here's a hundred million, and you do a capital core and the balance as deals come up, or do they shovel all the money to you and you have to find a home for it until the correct opportunity comes along.

I would say the vast majority of our capital, it's the former where use a capital calls a capital call as needed exactly, and that's got to help our o I. It's got to make numbers look really good because you're not forced to make a decision because you don't want to sit there earning half a percent, absolutely and more than anything, you don't want to be ever in a situation where you're either a force buyer or a force seller.

And we set up all of our structures to make sure that we're we're able to generate continued great performance by deploying capital too great opportunities when we find them, and then also selling when we think the opportunities right now, because we're forced to do so. What's the great war on Buffett quote? The difference between baseball and investing is

there no cold strikes? You could just sit there with the bat on your shoulder and wait for the pitch you like, and there's no there's no they're calling strikes on you. You can really be patient, and it has to make a huge difference. Patience matters a lot to say, To say, the least. I'm very re helts. You're listening to Masters and Business on Bloomberg Radio. My extra special guest today is Kathleen McCarthy. She is the global co

head of real Estate at black Stone. They manage over five hundred and sixty five billion dollars in real estate investments around the world. So let's talk a little bit what's going on today. There's a quote of yours that I found really fascinating. We are entering this tougher economic moment with capital and with cranes more in check than they have been in prior cycles, and I think that positions are real estate assets to do quite well. So I love the idea of capital and cranes and check.

That's a great phrase. You're referring to people waiting to invest and people waiting to build well. I think where

that quoe came from. It's just the concept that most real estate down cycle, so periods of time where real estate is under more pressure from a performance perspective, come about because there's been a lot of new capital, often lent to people who then go build speculative real estate meaning and speculative meaning that they're building and office building without a tenant in mind um and oftentimes what what you've seen in prior cycles is that the market gets

really nice and healthy, people are really happy with performance, Lenders get more comfortable, they lend folks provide equity to new projects. You end up with a lot of construction, and something happens, either there's been too much construction or the economy softens, and then real estate is in real estate is that under pressure because there's been too much

capital and too many cranes. And I think what feels very different about this moment is that we really never got back to those more heady levels of lending and more significant amounts of new construction prior to for example, the FED responding to inflation and interest rates, and so we're heading into whatever we're heading into with record low levels of vacancy relatively, i'd say disciplined capital structures. That's not to say people won't be under pressure from either

debt service coverage challenges or loan to value challenges. But I think the combination of as you talked about, some of the learnings from the global financial crisis, some of the restrictions on banks. I think also we can't underestimate how COVID did create an interruption to what was a very healthy market and probably change things in terms of not every project that was ready to go was put

into production in the summer of for example. And so what we're seeing on the ground now is that fundamentals when particularly in our preferred sectors, which are our biggest sectors are warehouses. That's our portfolio globally rental housing. UM I had no idea logistics and warehouse yeah. They We are high conviction investors and we pick themes that we think are really benefiting from the way people are living

and working and shopping and just mega trends. And so starting actually in two thousand and ten, we started buying warehouses, not I think at first even recognizing what was happening with the e commerce, but like I mentioned, we pay really careful attention to what's happening in our portfolio, and we started to realize what e commerce was doing to drive demand for warehouse space and how there was a fundamental shift that started happening. Historically, warehouse performance just tracked

GDP performance. It was basically a one to one correlation, and the house performance tracks g and then what you saw is with e commerce demand and the shift moving off goods online. It just changed. It just it just totally changed, you know, I don't I don't know, but

it's definitely more than one to one. And I would say again, like going back to the point of cranes the news, there has been new supply, but it really has not kept up with the explosive growth in demand for a warehouse space, particularly in urban areas, so what we call sometimes last mile logistics, so where the warehouses closest to the densest population centers. Those assets are in demand because of e commerce retailers wanting to get things to people in the same day or within a few hours.

Even we're also seeing really the impact of restoring and realignment of supply chains, and that is ongoing, and that is both of these phenomenal are global. One of the most interesting things is that these are often global stories.

These these themes um the mega trends are rarely isolated to just one economy and so U when when you think about the performance of our warehouse portfolio in this year, in you it's been some of the strongest fundamentals that we've we've seen and and you know, things are softening in certain pockets, but it's it's still really benefiting from

that that lower new supply environment. You mentioned the pandemic first Blackstone and you guys hybrid Are you in the office at what what is your We're fully in We're in really in five days. So that's really interesting because I wanted to ask the question Bloomberg. This is a big building, it's hybrid, but they're encouraging people to be

in more often. My my own office, we're kind of always been virtual and we tell people we do a Monday morning meeting which you can call in on, but we asked people come in the office one of two days a week. I'm hearing more and more offices are moving to a hybrid with an anchor day. So all of this back and forth is really what will cities look like post pandemic. Is there going to be a huge piece of the commercial office space that's going to

suffer from some form of a hybrid workforce? Because it doesn't feel like we're ever going back to every office in every city five days a week. That you guys are an exception. Most companies are not full five. It's three and two or four and one or two and three, like five days a week is kind of a rarity. I know Jamie Diamond wants everybody back in Chase five

days a week, but it ain't happening. We come at it, I think as part of a mission orientation, which is we have this incredible responsibility from our investors to do the absolute best job we possibly can with their capital. That's such a smart thing to say, can I tell you? Because as much as the younger generation loves the hybrid workforce, hey, we're stewards of capital, and our clients expect to expect

us to be here every day. Yes do it? I mean, and and so many of our customers as well, I would say, our frontline workers and emergency workers and teachers and firefighters. And so I feel like, how can we say, Okay, you you all need to be at work every day.

You're protecting us, teaching our children. But we're gonna We're gonna be hybrid and not necessarily delivered the best we possibly Nobody wants their money manager and their pajamas with their in their fuzzy slippers when they're responsible for billions of dollars a huge responsibility. And I would say I also personally think we have a huge responsibility to our own team to training and learning. I mean, I'm learning and training all the time, and I think about it

a lot. Like all the research on children in school, right, the learning loss from children not in school, It's the same thing in a workplace where all they're learning and then doing better. And so I think being together is so important now, as you know, I would love to convince everyone in the world that you know, being back in five days is really, you know, the right thing to do for for the whole ecosystem, the economy around where you work, and your own professional development and your

customers experience. I firmly believe it. But I would say, as we think about what is happening in the broader world and how that's impacting office demand, I think we're in an era of experimentation. We believe that the office, in some format and for some periods of time in a week, will continue to be a really critically important part of culture for for organizations and corporations. And what we're seeing happening is really actually, i'd say, an acceleration

of a trend that was started pre pandemic. I mean, it's so interesting. COVID really did accelerate so many trends in so many ways remote work cloud that It's funny because when we launched a firm, we had a national footprint, but we were New York based, So all the things that we've been doing during COVID, we started in and I was shocked in like people discovered FaceTime. It's like, you know that this technology is came out in two

thousand eight. This is not a but it was a massive I feels like the pandemic brought forward a decade. I think in many ways and in different different sectors. For real state, it feels like whether it's like three years of an acceleration or ten, it's definitely that that

pull forward. And what I'd say for office buildings, if we had met in two thousand sixteen, let's say, one of the things I would have probably called to your attention is the fact that so many office buildings, particularly whether you think at the lobbies or them the amenity floors for tenants, it started to feel more like a hotel. I mean, look at this beautiful Bloomberg building with the food.

It's first all, it's a beautiful building, and then you have your food and amenities, and I don't know if you have a fitness center, but so many buildings now do all of these up on the roof. It's unbelievable, all these things to really attract people into the office and to create a sense of community while they're here.

Cultural community, cultry and collaboration. That's really the fascinating thing about this building is kind of designed the way the original Pixar building was designed and ultimately the Apple space ship, which is everybody comes in the elevators through the sixth floor, no matter where you work, because it just creates these random interactions and you'd be amazed how often things spiral

from that. That collaborative force, collaboration. It's really a very impressive thing when when as it works, it's super important. And again that goes that feeds our theory that the office and is definitely going to continue to be a part of culture and building culture and creating more from the team you have. So wait, let me interrupt you again. So the consensus seems to be, Hey, I want to invest in real estate, but not offices. They're distressed. Offices

are going away. Put me into hospitality or farmland, but no office space. You guys aren't buying into that. Well, I would say for office specifically, or what is known as traditional office, we're seeing a real bifurcation in demand between with really the greatest man going to the highest quality, newest, best amenetize, most sustainable office buildings. And New York is a is a you know, a perfect example. I think

of what is happening. The office stock in New York is very old compared to the giant I don't know, I was New York Times, a Wall Street Journal article. I think it was the Times about all of this real estate along Park Avenue that we're built in the fifties, sixties, seventies and have none of the amenities that my modern clients want today. And I think it's it goes beyond amenities.

It's also the ability to create flexible space and create open spaces that you can move and change as your company's needs change, gathering places, and so I think that is real, real challenge for older office buildings in New York. The average age of an office building is sixty seven so and only about seven percent of the office stock in New York is less than ten years old. And listen, there's you don't have to be less than ten years

old to get the demand. But I would say we're seeing those assets attract much more to and at higher prices, and so, uh, we think those are going to come out as more winners in this kind of this. So you want little to do with the older spaces. At what point do you take a sixty or seventy year old building and say knock it down put up a

new one. Well, I would say these traditional office assets have been a relatively small part of our portfolio for a while because going back to our thematic investing, our portfolio is eighty percent concentrated in warehouses, rental housing, lab office space, and hospitality assets. So we'll get to biomedical research happening. Is that substantial enough that it's an asset class in your because I would imagine there's a lab here, there's lab there. You're saying this is much more substantial,

much more substantial. And actually, was I think is super interesting is that there are a few critical nodes in

the world. There's basically our whole portfolio is concentrated really in five Cambridge, US, Cambridge, UK, South San Francisco, Seattle, San Diego, and actually now Boulder, Colorado is emerging but these are like we sometimes describe as kind of the pulsing heart of research, and there is not enough space actually for all of the demand from biomedical tenants in these places, and going like, how how did we even come upon this theory and why this versus traditional office

going I mentioned two thousand six fifteen, going back to that period of time when we started recognizing, wow, tastes and trends are changing a lot for more traditional office assets, and we were quite concerned actually to your question about if you have an older office building, it could be quite expensive to try to repurpose it, reconfigure it to really attract tenants that are are great, the best tenants

in the world. And so we started thinking, Okay, if if office is going to be under pressure, are there segments or sub segments of the office market that we think will do better. And what we started to realize is that there was all of this capital and and and really a changing tide in terms of the research

demand and dollars being funded into it. Everything from immunotherapies, which of course now we all know a lot about things in the pandemic, genomics, big data intersecting with personalized medicine, and and UH and a change also and how and where this research was being done. Like if you think about when I was growing up, all of the big pharmaceutical companies had these corporate campuses that were highly securitized

deep in suburbs. And what started happening is all of those researchers and we want to be in cities adjacent to some of the best research institutions in the world, and and companies needed to be where they're their talent wanted to be. And so we UH in two thousand sixteen took private a nearly nine billion dollar company called BioMed and really concentrated the business in those best markets

and then helped it grow. One of the great things about having the capital we have access to is that we were able to help continue to grow their footprint in those different cities and then therefore serve the tenants that we think are the most attractive in that space. And so that is an example of why you can't

just pay the whole office market with a broadbrush. Lab office was was never a darling of real estate investors until the world changed and and the nature of the research happening, the volume of it and where it was getting done changed, and we I think we're at the forefront of really participating in that for our investors because we were looking for, okay, what does a megatrend and what's changing in the world. That's totally fascinating. The lab stuff is really I had no idea it was that huge.

You can see obviously labs are large and important. I just didn't know it was large enough to be a substantial asset class. The other area you have been very enthusiastic about is hospitality sector. You guys are super bullish on that. We have been long believers in hospitality, and part of this is just a very long term growing demand trend for hospitality, for experiences, for travel and tourism.

If you look at just about any graph of demand for air travel, demand for hotel room nights, whether it be leisure or business, you've seen a long term trend up into the right and pretty much only interrupted in a meaningful way by COVID and the great news I think if you're a hospitality owner is that you've seen a very strong balance back uh. In fact, I think demand for our hospitality assets is well exceeding what we

saw in so we we remain very enthusiastic about it. Now, Hospitality assets are, you know, a more operational asset class. When you think about if you have a warehouse or rental apartment, you have very limited exposure to labor costs, very limited exposure to capital costs, and so in uh inflationary environment, your cash flow growth is can be more robust in those asset classes because you can really you see top line rent growth pushing through to the bottom

line cash flow. In a hospitality asset, it can be more challenge lenged. But I think the good news is that is something that we have a lot of experience with and and we have the opportunity as a private investor to to work into our underwriting as we're thinking about buying assets, recognizing the environment you're in, recognizing higher costs, and so we we remain really attracted to attaching ourselves

to the growth in demand for that asset class. So let's talk a little bit about the structure for hospitality, because I suspect a lot of people may not understand when they look at a hotel, any of the big brands with Hilton, whatever, very often individual hotels are owned by separate people, but the management company comes in and it's of the same management company, but every hotel might be distinctly owned by a separate investment group, individual owner,

family owner. How does that challenge your investment process? We were, first of all, very accustomed to operating in a world where we may own, like we did with Hilton, both the real estate and the brand on it. We've actually seen a lot of opportunities in something like that to basically grow the brand and those franchises even onto real

estate that the company may not own. Um And then there's other circumstances where we just own the asset and we work in partnership with a brand to help us operate in branded and I would say there's great power in great brands in real estate, like you know, just like any other segment of the economy. One of our our hotel companies that we own today is something called Great Wolf Lodges. Many of your listeners may have been there.

It's it's water parks with hotels, and these assets are located within a couple hours driving distance of something like of the U S population, and it's a very affordable, attractive drive to destination vacation for families. And so that's an example where we've invested in a company that has a brand, and we're really trying to propel both the real estate strategy and the brand strategy to help it

be a growing and faster growing company. As we're speaking on looking up the name of the tell in the Grand Caymans that I remember collapsing early in the financial crisis because because the underlying owner just kept leveraging and leveraging and leveraging, and somebody very smart in private equity went out and brought up the debt for pennies on the dollar, and the next time they went to refindance, they said, nope, pay, Oh you can't pay. Thanks, we'll

take that billion dollar hotel. That story is just fascinating. How often do you see sort of unusual crazy investment themes blowing up like that? Well, or is that just leverage and don't Yeah, I would think too much that that's that. I think, you know it sounds I I'm a little bit familiar with that story. I'm definitely familiar with that hotel. I think it's a U. It's just an example of a capital structure that didn't work and wasn't prepared to withstand capital structure, and and and that's

something in the hospitality space. Certainly, you can have cash flows that dip in a in a tougher environment UM or if you're not managing it well and you need a capital structure really built to withstand it. You mentioned that earlier, But every time I think about um a hotel that changes hands sort of in a very rapid period of time, it always feels like somebody took on too much, that bad capital structure, not building enough resiliency

to withstand any sort of change in conditions. Yeah, definitely, I mean in a positive way, and an inflationary environment, hotel has the ultimate short duration least. So so we we talked ab Yeah, average rely sturation one night in the hospitality world. And you know, if you're managing it well, if you want a great outset, if you have a great capital structure, that can be a really good thing. And when rates are rising, um. But certainly if if you're not operating it well or if those rates come

under pressure, it can be really tough of you. So let's talk about a related hospit fatality issue casinos. The Supreme Court decision said, sorry, Nevada, you don't get to be the only state that has gambling. How has this changed the landscape for investing? Is this a growth area or are we pretty well casino up in the United

States or or around the world. Well, our focus in hotels that have casinos as part of their offering is really trying to find world class destination resorts that have demand drivers beyond just what's going on in that casino. And and actually our most profitable single asset investment ever was the Cosmopolitan Hotel in Las Vegas, which was an investment that we purchased from a bank that had had

to foreclose in complete construction on the project. And we saw it not just as an opportunity to kind of reset and reset operations versus how a bank was handling it, but we tried, we thought really creatively about how could we turn this whole opportunity on its head make it the coolest place as a destination in Las Vegas. And we renovated every into the property five million dollars of capital invested to not only offer better guest rooms, but also you know, an amazing set of food choices and

shows and entertainment. And when we sold it also we had a very creative exit that that found the right capital for the property itself and a right and the right capital for the operations. And what I think is, you know that that's just emblematic of buying an asset that is somebody might have just said, oh, that's a casino or casino hotel. We saw this as an entertainment destination and a strategy that we can then apply in

other places as well. We recently took private company in Australia called Crown Resorts and it's really taking that same playbook of how do we how do we transform these assets operations in that case as well, you know, really help support a very carefully constructed compliance and legal structure around it as well. Um, but I think you know it's it's it's for us beyond just a casino. It's about that whole entertainment and tourism experience we can deliver.

So let's look a little bit about multifamily and apartments. It feels like the financial crisis we have wildly unto builds single family homes, multi family homes, large apartment buildings. It seems like the demand for rentals is a key driver of inflation because they're just ain't enough apartments. What does that space look like, yeah, I think you you nailed it. We as a country, we have not built

enough housing of all forms since the financial crisis. Depending on how you're calculating, it's something like we're short forward to six million units. Unbelievable, and it's really like a growth opportunity, really really tough to dig out. And I would say the environment we're in is actually making that affordability question more challenging because you've seen homebuilders pull back from new construction. It's harder for people to afford to

buy a home today. The monthly cost of owning a home is I think something like nationwide one and a half times the rent monthly cost to rent a home, and so that is driving demand for rental housing, and so that is a big part of why we've continued to see rental housing be so resilient and and it's already I would say if you look back to prior tough periods, two thousand two ten is not an exception either. I'd say rental housing tends to perform quite well in

in tougher economic environments. It does really well in inflationary environments as well. I mentioned the shorter duration lease at the average lease of a rental house rental apartments about a year um. And so these are assets that are in great demand today and I think you're poised to perform well in the environment ahead as well. Lest anybody accused me of suffering from home country bias, which it certainly sounds like I have been, let's talk about around

the world. Where else does Blackstone see real estate opportunities outside of the United States. So in our business we invest not only US Canada, but also Western Europe and then across both developed and developing markets. In Asia, it's developed meaning Japan, Korea, Australia, and then more developing would be India is one of our our biggest markets globally and in particular in Asia as well and uh so.

And in terms of what we what we like outside of the U S, there's a lot of consistency in the themes I would say, in terms of logistics, rental housing, hospitality, assets, lab office, every ex Yeah, there's of course nuances in different markets and and in particular rental housing is not something that exists in the same way and a lot of markets around the world, So for example, Australia has hardly any official rental housing market the way we would

have it here. It's just just beginning. There's lots of people that own a condo and rented out. There's not a lot of owners who own a couple of hundred units and professionally managed it and rent it out and and so. But that's just beginning. But that's you know, that's an example of where things are a little different

in different parts of the world. But I do think for us, one of the advantages we have of being so connected globally is this, as we talked about kind of the powdern recognition of saying, okay, we had a theme in warehouses that was working really well in the US. Where else in the world do we see that and maybe other people don't, And for us that was the UK and Western Europe because the UK is having a real hard time. The UK is having a hard time,

but I would say we um the UK though. For the assets where we focus on, which our main focus is in the UK, have been warehouses, also really affordable housing, providing an affordable housing capital um that those have been are the biggest parts of our investment activity in the performance has continued to be very strong there. Let me ask you a challenging question. So you talk about Steve

Schwartzman says, is a pattern recognition. One of the things we preach to investors all the time is don't fool yourself with pattern recognition, meaning don't think that every setup is the same and oh, this is a great opportunity where really only looks a little bit like a previous great opportunity. How do you protect yourself against being fooled by what looks like, oh I see this pattern when it's not really what what we all think it is.

I do think one of the really I mean, I guess you could say challenging but really fun things about investing is that the environment does change constantly. So something that worked yesterday or transaction you were able to create usterday, you can't create again today, or you shouldn't maybe. And I would say one of the ways we protect ourselves goes back to this process where it is highly collaborative process and we're bringing together insights from all around our business.

And I would say we we force a lot of connectivity and collaboration between our investment team and our asset management team, who is with our portfolio companies every day creating value. And so What that allows us to do is I think spot as early as we probably possibly can where things might be changing, where those conditions are changing, and it's not always that something has turned negative, it

just maybe less positive. So an example of this would be just to keep drawing back to the warehouse example.

The e commerce revolution and reassoring and supply chain realignment has really propelled demand for all types of warehouse space, but where it has driven the most rent and cash flow growth is in these more urban areas that are more supply constrained almost by nature, less land available, and more demand because tenants really need to be there both to access their customers and to reduce the cost of

transportation and labor to move goods around. And so we pivoted our portfolio to focus on those markets and assets in those markets, away from other elements of the markets that are again doing well, doing fine, but just not growing as quickly. Our job, we feel, is to end up in the assets with the best possible performance, and I think that leads to shifts that might feel, you know, a little nuanced or a little minor at the time,

but ultimately lead to much better outcomes. I feel like I am getting on real estate education like no other. If we're talking about real estate of all sorts and capital structure, we obviously have to talk about the cost of capital and interest rates. Where you, guys, the Federal Reserve is obviously really important, Jerome Palace, in the midst of a unprecedented rate hiking regime, how do you look

at what's going on with the Fed? Well, I would say this is an environment that we feel like we've been preparing for for a long time. For forty years, we haven't seen anything like this since eighty one. Yeah, And I would say going back seven or eight years, maybe a little more, we were spending a lot of time thinking about, Okay, how do we get in ourselves invested in assets that are going to perform well? Should we be in a higher inflation, higher interest rate environment.

The last interest rate spike we saw was mid two thousands leading up to the financial crisis, but that was nothing like one and twenty two. No, and again, it

wasn't that we called this environment. It was more just a recognition that we had been in a very persistently, very low interest rate, very low inflation environment, and we started talking with our investors and amongst ourselves a about Okay, you know what happens in the world with higher rates, higher inflation, maybe sustained geopolitical uncertainty, feels like a lot

more gaming difference, just different scenarios. And when you think about at the at the most simplistic level, the way you value real estate, the way you make money in real estate is it's a combination of your cash flow and the multiple you can put on that cash flow. In real estate parlance, it's the inverse of a multiple

cap rate to yield. People think about in yields. By the way, when I switched from M and A to real estate, I spent basically eighteen months in my mind just converting yields into multiples, because you know, learning relearning the lingos of valuation. It's the same thing, you're just looking at it from different different perspective, just just flip

it around. And so, you know, what we think about is that if you have an environment like the one we're in where there's upward pressure on interest rates, therefore upward pressure on cap rates or said like another way, downward pressure on multiples. The way to mitigate that is through cash flow growth. So you want to be in assets where you can grow cash flows both because as a matter of what's happening in the economy, the wind might be at your back, and also because of what

we can do with our interventions for value creation. And that is a big part of how we ended up with this very concentrated portfolio and warehouses and rental housing and lab office and hotels where you have short duration leases, so as rents are going up, you can capture that higher rent like short duration bonds, like short duration bonds exactly. Also, the vast majority of those assets, as I mentioned, have relatively low input costs, so you're not as exposed to

higher input cost pressure in an inflationary environment. And again you may have headwinds in terms of what's happening with rates or what's then happening with cap rates, but you can still perform well because of the cash flow growth we're able to generate. And and and there's you know, we're not just it's making this up. There's precedent for it if you look at if you look back to too, I think it's nine eighty two, the last time we were in a you know, a significant rate hiking cycle.

You saw that rental growth in apartments opped up with inflation even though actually interestingly, supply was two x what it is right now. This this is part of why we have confidence. Yes, you could also look in the in UK because I think it was between nineteen seventy and nineteen eighty. UM real estate returns something like sixteen percent in an environment with you very very substantial inflation, and so we know again we we wanted to position

our portfolios for this environment. And so you know what we see happening now is the FED is hard at work trying to cool the economy in a way that ideally doesn't you have a tough landing, but you know that certainly you're seeing some of that comes through to our market in the form of more uncertainty. Transaction activity slows down because people are unsure of your what how

should I value it? How where can I borrow? Borrowing costs have gone up, and and that seems like kind of a natural outcome of of what's happening in this environment. So let me ask you, um the opposite question of investing during a rising rate environment, how would you respond to the criticism that some people have floated. Well, of course, black Stone real estate has done great over the past thirty years, rates have done nothing but go lower. Their

cap structure has been super friendly. You're I'm assuming your pushback is doing well in a rising rate environment. Also, it's not just the cost of capital. Yeah, I would say, um, there's always something that people who you know seem to want to say, is like, you know why it's now not going to work anymore for us? Um And there's I've I've heard a lot of different versions of things, And I would say we have done this for thirty years in a lot of different parts of the world.

We're not in every circumstance have we had ultra low interest rates. And I would say we've continued to generate great performance in all of those different types of environments and all of those different places. And I think it is by sticking to this thematic approach, a really discipline approach in terms of what we buy, and then how how do we capitalize it? And and then importantly how do we create value as we own it? I mean, interestingly,

there's one of my favorite examples is Japan. So your Japan should have all the hallmarks of a tough place to make money in real estate. You have a shrinking population, you have very low cap rates, persistently very low borrowing costs, and very low growth, and yet it's been one of our most successful markets ever. And that's partly because of

the nature of the transactions we buy. We can buy more, do more complicated investments that others maybe can't tackle, larger situations where we buy portfolios of real estate, not single assets, and then we manage the heck out of it. We do every last thing we can do to create value enhance those cash flows, and that's how we do well. And so again, all different kinds of environments can come our way, but I think the process is built to

perform in any one of them. Quite fascinating. I know I only have you for a limited amount of time. Four I get to my favorite questions. I have to ask you about a curve bawl question. Coach Ella, you're you're like a regular Coachella like you don't like By the way, when I think of coach Ella, I think of burning Man and mud pitts Um Coachell is not quite that crazy. But how how often you go to this and what what is that experience? Like? Well, I've

been fourteen times. Get out. Well, you're not old enough fourteen times. So you started going when you were twelve. You're very kind to say that. No. I started going because my then boyfriend now husband was at business school at U c. L A. He's super into music, and he drove down there in two thousand six, Um two five or six and he um and you went with him. I was not with him at the time, but at that festival and it was so different then you could

buy single day tickets. It wasn't this whole thing it is out uh And I remember him calling me and saying, you have to come out next year for this. It's so amazing. And even at that first hotel, there were so many bands he got exposed to that have become some of our favorites and really just opened us up to listening to a lot of different kinds of music. Um. You the proverbial undercard. If you go all day, you you hear a lot of new and music is a lot of alt or Yeah, it's it hasn't. I'd say

it grew up. I think it's a more alternative rock festival. And it is really branch now. There's a lot of wrap and dance and E d M. We're still there mostly for the rock music, which is a diminishing part of the schedule. I'd say I'm probably, um, you've sort of identified it the dorky ist and maybe now getting to the oldest person with the most sun block on

at the whole festival. My wife and I every time we go into a show, we have a fun little thing we do, which is what's the demographic of the crowd and are we at the bottom of the top of that age bread and right now? And then like well walk, So we sort of show. The other day there's a great band called the Fab Fox that the Beatles covers. It's all It's it's letterman, Um, Jimmy Fallon.

Their band does this, and we were amazed that they were like teenagers and twenty somethings singing along, knowing every word. It's like, oh, some of the stuff is generational. But we're not talking boomeer rock or classic rock. You're talking um, something much more. Give us a few bands that you've seen that have stayed with you. What sort of alt

music U do you like at Coachella? Well, um, probably one of the favorite you know, Coachella experience ever would be actually Roger Waters, who played Dark Side of the Moon in its entirety, and I was not a Roger Waters or Pink Floyd fan before seeing this, and I the show, including the pig flying and dropping the leaflets, was so amazing. Uh, it was just it was so

memorable in part. And this is not the only example of this, but it was a band or a performer where I was kind of like, do I really want to stay up laid? My body's jet legged, I've been tired. My Matt makes me go at noon and see all the early bands and like do I really? One did and it was so interesting and amazing. Um. There was a similar experience also seeing The Cure for the first time. I had always loved the Cure, but it never got

to show. Oh my gosh, they played so long that they were they basically pulled the plug on them and they kept playing off their amps. But you know, Chris, the city of Coachella will find them for this, and they just kept going. They finally had to, like, you know, move Robert Smith on the stage. But it was so amazing. And I've now seen The Cure many times, but I've never seen The Cure and I was a fan. I highly recommend so I'm gonna out myself. Here's how old

I am. Freshman year in college, me and my buddy Joe go to Nashville Coliseum where we scalp a pair of tickets for a hundred and seventeen dollars for the pair for one of the seven original Pink Floyd the Wall. My gosh, they did three or four shows in Nassa Calosseum and three or four shows in the l A.

I think it was the Forum of the Colosseum. And the only reason we paid that little for the tickets is the cops had come out on high stepping horses and we're clearing everybody out, and I remember saying to the guy, you got about thirty seconds before you're holding two worthless pieces of paper and we had cash. He literally snatched the cash from our hands, gave us tickets. The cops come to us and we're like, we got tickets, and we went running. Missed the first I don't know,

three minutes of the show. Astounding, right, that's how old I am. Well, I would say one of the one, and you kind of mentioned it. It has been you find it interesting to see live music not only come back to post pandemic. But I think people take real interest in this. And Matt, my husband, I talked about this all the time. He tells it maybe a similar story where he I forget what year it was, but he saw Radiohead at Radio City Music Hall and he was offended that he had he scalped a ticket for

like thirty five dollars or something like this. We don't really understand how, you know, how does like a Pearl Jam concert and MSG work where the whole thing sells out at a certain price. Why isn't put Why isn't Pearl Jam just selling the tickets for a lot more. It's sort of an interesting question, But there's a monopoly and be all the secondary sellers have the firepower to that. It's like in the markets, Hey, do you want to go up against Goldman Sachs trading desk as a day trader?

If you're stupid, you do. But ordinary people can't compete, and ordinary people can't buy tickets because all the bots are doing their things. I could. I could whine about this for hours. Sounds like we need another podcast, Yeah I won't. Instead, I'm going to jump to our favorite questions. So normally I would ask what are you streaming? But I think we're past streaming. Let's talk about what are you listening to today? So I have Phoebe Bridgers on repeat,

listening to her constantly. I will check that out. Tell us about some of your mentors who helped to shape your career. I think mentorship is like a constellation of people that, in my case, so many different people at any different times. Sorry, um, you know two of my incredible mentors actually themselves are friends. So I worked when I was like Goldman, very closely with Bram Kramer, who taught me a lot about, you know, just not only being a great investor, but i'd say also a great

manager of people. And I think interestingly, maybe not surprisingly, it turns out he's close friends with John Gray, who has been an incredible mentor and sponsor to me and every single day challenges me to be better and work harder and think more carefully at black Stone. Um, let's talk about books. What are some of your favorites and what are you reading right now? I love to read.

I would break what I'm reading into two categories, what I'm reading to my children and then what I'm reading myself. So what I reading my children is. Um, we've been working our way to the kids love it. No, we've been reading the Royal Doll books, which somehow, even though I grew in a family of reading, which I never read this yeah, oh yeah, and I somehow missed those as a child. So I really enjoyed reading Charlie Chocolate Factory, and Matilda and the Witches and all of those fun things.

I have a seven year old and a ten year old. We have a lot of Harry Potter happening in our house too. I'm actually movies books um I read when the kids were growing up. You can watch the movies, but only after you read the books. So all the kids had to read the book and then go watch My Tenerald I think has read all the Harry Potter's like four times at this point, I'm listening to them on audiobook now their endless. It seems like there's a

different one every other year. So they they they're so versed in all of it that I was not able to keep up with dinner table conversations. So now listening to them again because otherwise I'm not gonna be able to keep up. And then for myself, it's funny. I love reading novels. But I really enjoyed in the past couple of years reading Patrick read and Keith's books. He wrote a book called Say Nothing, which was about the

troubles in Northern Ireland. UM. And now I'm reading something called Empire Pain, which is about, um, basically the opioid crisis and how that came about. And it can be a little heavy, but it's so interesting. But it's written really well in such a compelling way. The one they ended up making the film about. It's possible. I am

so behind on movies and TV shows. Well, my husband tells me that during the pandemic, when everyone else was making their way through the full Netflix catalog, I didn't watch a single show, So I gotta come on, you didn't watch The Crown. I did. I had post like post deep pandemic. I And now that I've been gotten back to traveling, I binge watched The Crown. Um, I've watched Marvelous Mrs Maysl. I love that so so good. Ye, so you you caught the Highlight so I know somebody

who is involved and no spoilers. UM, but one of the things I'm like halfway through the most recent season and I'm like, oh, so, I guess she's gonna die soon, and it's like, no, no, that's next season. We have the last season. She's still around a lot of material. Yeah, they have endless material. Although there's some complaints this season is inaccurate, I don't care. It's just the most gorgeous, beautifully told stories, and even if you're not an anglophile,

it's just fascinating. So digression side, let's get to our last two questions. What sort of advice would you give to a recent college grad who was interested in a career neither real estate investing or finance or m and A or any of the things that you have done so successfully. I would say to have a long and great career focus on your writing skills, and that sometimes I think is a counterintuitive for a job that's more considered matthew and analytical, And of course those are basic

fundamental skills you absolutely need to have. But I think when I when I think about my career or what has created the best opportunities for me, it often comes about because it's we need to come communicate something either to our investment committee or to our investors, or increasingly to a much broader group of stakeholders that include elected officials and tenants and community members and activists, all of whom you are are touching our business in some way.

And I think that ability to take ideas that can be rather complicated or sometimes seem a bit foreign to others and really put them into terms that are clear and compelling and understandable is super important. That that's really interesting. Final question, what do you know about the world of investing today that you wish you knew twenty plus years

or so ago when you were first getting started. I think I think at the time, I wish I knew just how interesting this work would stay for so long and how many amazing people I would get to work with, certainly a blackstone. But when I think about the people who lead our companies or folks in the industry, I now know opportunities like this to talk to you like they. I think I spent a lot of the early days of my career worrying about how long will I do this?

Or should I be doing this a lot longer? And if I had just kind of thrown myself into like, wow, let's just enjoy every moment with all of these people who are intellectually curious and smart and hard working, and I've had the good fortune of always being with teams that were super collaborative and supportive. I wish I had known that, because I think I would have had a lot more confidence of just every day enjoying the moment that was really fascinating. Thank you, Kathleen for being so

generous with your time. We have been speaking with Kathleen McCarthy. She is the global co head of real estate Investing for Blackstone, running it's nearly uh six hundred billion dollars in real estate investments. If you enjoy this conversation, well, please check out any of the previous four hundred and fifty interviews we've done over the past uh eight years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts. UH. Follow me on Twitter at

rid Halts. Check out all of the Bloomberg podcasts at podcast uh. You can sign up for my daily reading list at Rid Halts dot com. I would be remiss if I did not thank the cract team who helps put these conversations together each week. Justin Milner is my audio engineer. Uh Atico val Bron is our project manager. Sean Russo is my head of research. Paris Wold is my producer. I'm Barry Dhults. You have been listening to Masters and Business on Bloomberg Radio.