The New Bankers

Here is a great New York Times article on Blackstone's GSO debt financing unit (the same GSO that manages the Franklin Square non-traded BDCs) and its investments in Ireland.  The story is a fascinating read.  The recent financial crisis was, in my opinion, the most significant financial event since the Great Depression, and I believe we still haven't seen all its ramifications.  (And, more importantly, we have not learned the hard lessons the crisis was screaming at us.)

The rise of firms like Blackstone, which neatly stepped into the financial crisis' banking void, is real.  The article ends on an ominous note:

And the type of shadow banking that most concerns regulators — short-term borrowing involving broker dealers, hedge funds and money market funds — does not apply to Blackstone.

But, there is no doubt that its fast-growing credit business is breaking new financial ground.

“If the fund in question knows right up front what the risks are and its exposure is quasi-equity in nature that can be beneficial,” said Adair Turner, formerly Britain’s top financial regulator and co-chairman of a comprehensive study of the shadow banking industry.

“But we also know that the financial industry is forever innovating and when it does it tends to put more leverage in the system so we have to watch this very carefully.”

With firms like Blackstone, which has $265 billion to invest, the new bankers are a major force in business.

Go Global

My Bloomberg app on my iPhone does not update its industry articles as fast as Bloomberg's website.  I read this article on Blackstone's view on real estate opportunities on my iPhone last night.  The article originally appeared last Thursday.  Anyway, I guess I'm glad the app is slow because I missed the story when it was first published.

Blackstone is looking at the dislocation in emerging markets as an opportunity.  Of more interest to me is Blackstone's opinion on Europe:

While Europe’s economic crisis has eased, the shrinkage of loans and other assets that regulators are pressing banks to undertake will “be taking some oxygen” out of the region’s economies. Blackstone is forecasting “very slow growth,” (Jonathan) Gray said. (Mr. Gray is Blackstone's global head of real estate.)

For real estate investors, Gray expects forced sales by European banks to continue for several more years, fostering opportunity. Blackstone is seeking distressed warehouses, hotels and office buildings throughout the region, he said.

“When people are forced to sell, the pricing tends to be better,” he said. “In Europe, it’s not a growth story. It’s a distress story.”

Blackstone also sees "great strength" in the US housing market as construction still trails pre-recession levels.  Finally, Blackstone sees "good signs" in the US lodging market.  The "good signs" is somewhat substantiated by this Calculated Risk blog post that Las Vegas Convention traffic is 18% below pre-recession levels, telling me that one important demand component is still recovering.

Of course the global head of real estate, responsible for an $80 billion portfolio, is going to be optimistic, but it's still interesting to read where one of the largest real estate investors in the world sees opportunities.

Update

Work has intercepted blogging, but I expect more regular posts soon.   In the mean time, I've been at a loss for a pithy analysis of Kite Realty's $1.2 billion acquisition of the non-traded REIT Inland Diversified, other than it's hard to believe this deal would not have happened without American Realty Capital's and Cole's successful liquidity in several of their REITs.  Combine this with the sour aftertaste from Inland's last listing, Retail Properties of America, and any price above the $10.00 per share offer price paid by investors is a win for Inland, and for Inland Diversified shareholders who'll get fully liquidity when the merger closes.