This story appears in the June 28, 2015 issue of Forbes. Subscribe
Jonathan Gray, 45
Hometown: Highland Park, Ill.
Alma Mater: Wharton, B.S.; University of Pennsylvania, B.A.
Specialty: Real estate
Day Job: Global head of real estate, Blackstone Group
Cred: Largely under Gray's leadership Blackstone has become one of the largest and most profitable landlords on the planet, with $93 billion in assets and an annualized net return of 18% over the last 23 years.
Worst Investment: Northern California real estate in the late 1990s, including a one-story warehouse for research and development at a very high price per square foot. "I was excited because the tenant was paying a huge rent," says Gray. "What I hadn't focused on was the name of the tenant: Gobosh.com. Get big or stay home dot-com. I should have stayed home." Blackstone lost about $10 million. "It's like getting your hand burnt on the stove."
Pay-It-Forward Wisdom: "Buy hard assets below replacement costs." That was the simple credo of John Schreiber, the Blackstone partner who helped launch the real estate business. "People do very complex things in finance," Gray says. "I don't think what we do is so complicated." If it costs $500 per square foot to construct a new office building, buying one for $350 per square foot makes sense.
Biggest Worry: Interest rates. "I've been wrong about this, but at some point here this trade feels like it's run its course," says Gray of the lengthy bull market in bonds. In the real estate world that means assets with long-term leases could be in trouble if rates rise, making their rental income streams less attractive. To counteract that, Gray looks to hotels.
Best Idea: Housing. Blackstone has gobbled up almost 50,000 single-family homes since 2012, but Gray isn't selling yet. "New supply is still down about half where it was long-term, and I think single-family housing will outperform most people's expectations." Gray says it's an excellent time to buy a house, both here and in parts of Europe.