NEW YORK, NY – One of the advantages of holding vast amounts of capital is the ability to disregard the cyclical ‘nature’ of the economy and having the luxury to sit out periods of expansion and contraction with a bird’s-eye view of your investments. While the little guy struggles on Main Street, making ends meet in a cut-throat, day-to-day business environment, companies like Blackstone get to watch the drama unfold and place their chips where they see the most promising returns.
Even among gamblers, doubling down at a black jack table in Las Vegas represents far more risk than any bet made by the giant private equity firm, whose army of trade analysts, market-trained algorithms and formulas would get anyone employing such methods at the MGM Grand thrown out onto the Strip.
Cheat-sheets and almost $650 billion under management allows Blackstone to focus on what is known in the industry as “secular megatrends” or economic sectors that grow over a period of years or decades, transcending market fluctuations and asset bubbles. U.S. housing is one such trend and one of the company’s “key thematic investment areas“, which recently expanded its stake with a $6 billion acquisition of single-family rental (SFR) management firm, Home Partners of America (HPA).
The move is just one of many Blackstone has made over the last several years to position itself as the largest private property landlord in the country. Blackstone’s real estate portfolio is worth nearly half of the firm’s equity and half of that – $163 billion – is comprised of the company’s own capital equity. From Suburban homes to student housing, Blackstone’s domination of the American real estate market continues to grow, but it is not stopping there.
Blackstone is India’s largest warehouse landlord, as well. On Monday, Blackstone’s Asia II fund added 1.2 million square feet of warehouse space to its massive holdings in the country with a $40 million purchase in New Delhi, while also making inroads in Hong Kong. In the United States, Blackstone’s warehouse portfolio shares the market with rival firm Prologis, who control approximately one billion square feet of warehouse space between them.
In this real-life game of Monopoly, the firm’s thirst for private and commercial real estate is directly tied to another megatrend it considers “key” for its long-term investment strategies. Establishing control over global supply chain logistics with its warehouses in India and Hong Kong, Blackstone can play a decisive role in the market dynamics of its other investments, like its pending purchase of “smart access solutions” provider Chamberlain Group, which produces the popular garage-door opener, LiftMaster, and many other residential and commercial access devices used around the world.
Garage Sale
Accounting for 65% of all garage-door installations in the U.S., Chamberlain is a unique opportunity for Blackstone to consolidate smart home technology across the country and build the digital “home ecosystem of the future” through Chamberlain’s myQ garage door control app, which has already started the process of integrating with other smart home products with the company’s own acquisitions of smart lock, security camera companies and even a partnership with Amazon Key to facilitate package delivery.
As one of the first Internet-of-Things (IoT) products on the market coupled with its ubiquity, the LiftMaster literally opens the door for the standardization of artificial intelligence-driven surveillance technology across every American home. “We have built this cloud infrastructure and IoT capability,” Chamberlain CTO Gani Nayak told Built-In Beta a year ago, confident that the company was poised to quickly evolve “from being just a garage-door opener company” to a leader in the smart home space.
Blackstone’s acquisition only buttresses Nayak’s aspirations, which nevertheless, seem to have a basis in more than just starry-eyed entrepreneurial yearning. After all, Nayak spent two years as Senior Vice President of Systems & Solutions at Comverse Inc., part of the splintered Comverse Technology, Inc., an offshoot of Israeli Efrat Future Technologies Ltd, founded in the early 1980s by one of the “pioneers of high-tech in Israel“, Boaz Misholi.
Among the first to make use of artificial intelligence for communications and multimedia applications, Misholi patented a computerized message management system in 1986 that would form the basis of Comverse’s commercial offering and help land a significant contract with the German post office in 1990. The company’s Trilogue system would be deployed across Europe and Soviet bloc regions inaccessible to most Western companies. Comverse’s manufacturing plants were located in Israel, while assembly and export took place in New York.
By the mid-nineties, Comverse had branched out to transaction processing systems used at hospitals, corporate message centers and the service industry. Less than a decade after going public, Comverse’s technology was being deployed by telecommunication and technology giants like AT&T, Nokia and Oracle. In 2002, the company was operating in more than 100 countries as a leading wireless network operator.
Prior to its global success, Comverse had developed an intelligence-gathering technology called AudioDisk, which it marketed mainly to police and intel organizations in the United States and which would lay the groundwork for its entry into the counterterrorism business. In 1993, a Dow Jones market news service reported that Comverse’s stock had shot up in value as a result of the Oklahoma City Bombing, noting that the company’s products would rise in demand as a result of then President Clinton’s “proposal to give the FBI increased authority to comb through hotel registers and to search phone logs, as well as greater access to credit-card records”.
After a securities fraud scandal by Comverse co-founder and CEO Jacob “Kobi” Alexander rocked the company in 2006, the voicemail technology firm that launched Israel’s tech sector and what is now referred to as “Startup Nation” began a process of divestiture. With Alexander safely ensconced in Nambia and protected by Israeli authorities, Comverse was broken up into two companies, Comverse, Inc. and Verint Systems in 2012, when Nayak came on board the former.
In February 2017, the U.S. Department of Justice sentenced Alexander to 30 months in prison and served about 12 months in a New York penitentiary before being allowed to serve the remainder of his sentence in Israel. Before fleeing to Nambia via Germany, Alexander transferred part of his $57 million to Bank Leumi in Israel.
Founded in 1902 as the Anglo Palestine Company, the financing vehicle for the Zionist’s Palestine settlement project, it was renamed Bank Leumi after handing over its central banking role to the Bank of Israel upon its founding in 1954 and has since emerged as one of the main engines of Israel’s technology sector in the 21st century.
Like Family
Barely a year after Comverse’s demise, “a gentleman” from Leumi bank approached UPenn and NYU Stern School of Business alum Yifat Oron to create the storied financial institution’s technology investment division, LeumiTech. With her experience in Israel’s Defense Ministry’s Directorate of R&D and stints at J.P. Morgan, Oron was a principal player in fueling the country’s rise in the tech startup space.
As LeumiTech’s CEO, Oron focused on facilitating credit and lending to the Israeli technology sector, usually referred to as Startup Nation. LeumiTech has provided startup capital for surveillance technology outfits like Cellebrite, which like many private Israeli tech startups had its origins in the Israeli Defense Forces (IDF).
Last April, Blackstone appointed Oron to head its new offices in Tel Aviv and oversee its technology investments in Israel in the private equity firm’s new Blackstone Growth (BXG) fund, which raised $4.5 billion and touted as the “largest first-time growth equity vehicle in history”. The fund has already made significant investments in major tech companies like Bumble and MIT spin-off Ginger, which was recently merged with another Blackstone acquisition to form the biggest on-demand mental health app on the market.
Before scoring the gig at Leumi Bank, Oron was a managing partner for her father’s venture capital firm, Vertex Venture Capital (VVC). Yoram Oron’s connections to the Israeli military industrial complex run deep. In 1984, he founded Reshef Technologies (after a Canaanite god of war), which produced “next generation […] fuses for guided missiles, mortars, tanks, artillery and rockets” for the IDF. He also co-founded a “provider of equipment, software, and service for integrated wireless voice and data” called Geotek Communications, where he managed its military division.
Blackstone’s Tel Aviv office inauguration and selection of Oron’s daughter to lead it came weeks after the Israeli committee’s report recommended the development of a refreshed AI strategy, citing the country’s “lag” in the sector. American lawmakers, however, relied on the tried-and-true appeals to national security and framed the proposed legislation as a way to counter “Chinese advancements in the field”.
Evil in Bulk
Blackstone co-founder and CEO Steven A. Schwarzman has all the bases covered. Not only does his private equity behemoth collect the rent and mortgage payments for most Americans who don’t depend on government-assisted housing, he also has the inside track on the exponential profits of “smart home” integrations and its AI-reliant technologies, which are now going to be taken to the next level of development by government subsidies.
The private equity firm’s decision to open a branch in Israel came only three months after Oron’s appointment, when U.S. Senators Marco Rubio (R-FL) and Maria Cantwell (D-WA) introduced a bill to create $50 million collaborative effort between the governments of Israel and the U.S. to “establish the United States–Israel Artificial Intelligence Center to improve artificial intelligence research and development cooperation”.
Last week, five Congressional house members advanced a “companion” bill that would appropriate $10 million a year for the next five years for the National Science Foundation and “other relevant” agencies to create the center in conjunction with the Israeli government, which had previously announced a massive infusion of money into AI development and the creation of a new national program for artificial intelligence.
Together with the firm’s control of logistics along the global supply chain of IoT goods through its commercial warehouse assets, its prime position in the U.S.-sponsored Israeli military-linked tech sector and a corporate yes-man factory in Beijing, Blackstone is in an unbeatable position to make virtually lossless investments for its clients, whether these entail the delivery time of that electric toothbrush waiting for you on the garage floor or the most competitive bulk-price of a military drone manufacturer.
