What It Takes by Stephen A. Schwarzman

Author:Stephen A. Schwarzman
Language: eng
Format: epub
Publisher: Avid Reader Press / Simon & Schuster
Published: 2019-09-16T16:00:00+00:00

LISTEN FOR DISCORDANT NOTES

One Monday in fall 2006, I settled into my seat at the long conference table that fills the boardroom of our New York office. Colleagues filled every seat, even the benches along the walls. Video screens embedded in the walls showed our teams in London, Mumbai, and Hong Kong. We talked about politics, the macroeconomy, and trends in our businesses. Forty-three stories above the streets of Manhattan, these meetings always gave me the sense of manning a mission control center, navigating Blackstone through a fast-changing and uncertain environment. What I heard that morning scared me.

The discussion had turned to Spain, where we were looking at buying several blocks of condominiums. Someone said that there was now so much construction going on in southern Spain that you could move most of Germany there and still have units to spare. Developers were ignoring the basic laws of supply and demand.

As our European team laid out their concerns, a disembodied voice interrupted us. “We’re seeing the same thing in India. Raw land here is up ten times in eighteen months.” I almost choked on my coffee.

“Who is that?” I said, looking around the room. I thought everyone was connected via monitor, and it took me a moment to realize the voice was coming from a telephone speaker.

“This is Tuhin Parikh,” said the voice. “I recently joined the firm to look at real estate in India.” We had opened our India office only a year before and had made no investments in real estate there. It was a surprise to hear from him. The line had static. But what Tuhin said was so startling, I asked him to repeat it.

“Yes, Steve,” he said. “In the past eighteen months, we’ve seen land prices multiply ten times. Prices were much too high already. And now they have gone completely crazy.” India was a fast-growing, emerging economy, which was why we had decided to open an office there. But it was not growing at anything like the rate that would have justified that kind of explosion in land prices. In fifteen years of real estate investing, I had never seen anything go up ten times in eighteen months.

Even more concerning, this was just raw land. When you buy land, you are betting that you can build something valuable on it. But that could take years. You are betting that you can get the approvals you need from the government; that construction goes smoothly; that there will still be demand for whatever you build whenever you finish it; and that the economic conditions remain strong enough for you to earn a yield higher than your cost of borrowing. When land prices are skyrocketing ten times in a year and a half, you know that investors have succumbed to a kind of madness, blinding themselves to all the obvious risks.

On the spot, we decided that we would not be doing the Spanish housing deal. There were some confused looks around the table. What did land prices

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