The ‘Odd’ Part of the Economy That Baffles Steve Schwarzman

Speaking Friday at a real estate conference, Blackstone’s CEO gave his view of markets.

  Stephen A. Schwarzman speaks at Goodwin & Columbia Business School: Real Estate Capital Markets Conference 2020

Stephen A. Schwarzman speaks at Goodwin & Columbia Business School: Real Estate Capital Markets Conference 2020

As asset managers keep watching for signs of crisis, Blackstone Group chief executive officer Stephen Schwarzman doesn’t see excesses that pose systemic risk. But when speaking to areas of potential concern at a real estate conference Friday, he was careful to separate what he understands about the past decade’s expansion — and what he does not.

In the “normal” part of the economy, market prices are “pretty high” but not so excessive as to cause a crisis, Schwarzman said Friday on stage at the Real Estate Capital Markets Conference in New York. The “odd” part — negative interest rates — baffles him.

Why would he pay someone to take his money?

“I don’t really understand,” said Schwarzman. “I would rather build a warehouse with a few guards” and put it away there, he said, drawing laughter from the audience.

Blackstone, with $163 billion of real estate assets at the end of last year, knows something about warehouses. After formerly dismissing them as “pedestrian,” Blackstone began buying warehouses in 2010 because of the money to be made from disruption by Amazon.com.

Blackstone believed the rise in online shopping meant retailers would need to move distribution centers closer to consumers, Schwarzman explained. “The whole game was going to change,” he said, adding that the firm continues to buy warehouses.

“It’s been great,” he said. “Better than malls.”

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Other speakers at the event, co-hosted by Goodwin Procter and Columbia University’s business school, expressed concern over the record-long bull market. Baseball analogies came up more than once.

In opening the event, John Ferguson, Goodwin’s co-chair of private and real estate investment funds, said investors are no longer asking what inning markets are in. They’ve moved on to, “how many innings are there?” he said, and questioning what game is being played.

Meanwhile, the U.S. economy has continued to grow and the consumer is doing well, according to Schwarzman. He said the trade relationship between the U.S. and China will be important to global growth, with the two countries potentially representing as much as 40 percent of the world’s economy.

Schwarzman, who recently helped negotiate the “phase-one” trade deal between the U.S. and China, said it’s in the world’s interest for these two powerful countries to get along. Fighting over trade can hurt global growth, he said.

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