It was the moment Nadeem Meghji realized that the New Hollywood spelled magic for real estate.

On a spring day in 2019, the chief of property investments in the Americas for private equity powerhouse Blackstone was gazing down from the rooftop terrace of the 14-story, avant-garde Netflix building on L.A.’s Sunset Boulevard—the streaming giant’s creative headquarters. The jammed parking lots, the parade of technicians, writers, actors, and producers rushing from office towers to low-slung studios, all told Meghji that this buzzing epicenter for content creation exemplified one of the best real estate opportunities on the planet.

“This wasn’t just another cluster of office towers,” he recalls. “It was critical infrastructure for making the online entertainment that was already exploding in a new way, in a fully integrated hub where a Netflix or Disney leases office and studio space for scripting, filming, marketing, and every other part of the production process.”

During his visit, Meghji and the Blackstone team learned that Nexflix achieved big savings by using long-term leases to control the property where its shows are planned and shot, a centralized strategy also followed by Disney and Amazon. That was a departure from the piecemeal model of the recent past, where film and TV studios would empower individual producers to rent offices and soundstages for each show, on a temporary schedule.

For Meghji, the “rent-in-bulk” and “produce in one place” template for streaming presented just the kind of investment Blackstone craves: buildings occupied by tenants in booming businesses, located in cities where it’s extremely difficult for rival landlords to butt in, even as rents rise rapidly. For Meghji, the sprawling media medley he viewed from atop the Netflix tower, encompassing the historic, white-columned studio that once served as headquarters for Warner Bros., was a one-of-a-kind wonder that would face scant competition.

So more than a year later, in June 2020, as the offices and studios stood almost empty during the depths of the pandemic, Blackstone announced that it was purchasing 49% of the L.A. complex where Meghji had his revelation. The deal, which valued the property at $1.65 billion, made Blackstone co-owner of the enterprise that operates one of the largest independent studio facilities in America. It’s now landlord for the Netflix L.A. headquarters, and boasts Netflix and Disney as anchor tenants. On its soundstages, the cameras roll on such hit series as Netflix’s The Upshaws and ABC’s Station 19, while the Blackstone co-owned business oversees everything from stage management to catering to gaffers training key lights on the starring players.

The complex is also a symbol of Blackstone’s prescience. While nobody saw the pandemic coming, Blackstone is on a remarkable run thanks to real estate strategies—implemented both before and during COVID—that have been ideally suited to profit from the crisis-driven transformation in America’s way of living. As the lockdowns ease, the company is stocked with fresh piles of cash, and it’s betting those billions on the premise that its favored trends have the strongest legs in real estate.

“Highest conviction” themes

Blackstone’s Hollywood adventure spotlights its specialty: finding relatively undiscovered corridors that promise much higher returns than most other classes of properties, and finding them early on. The Wall Street stalwart is now the world’s largest private owner of commercial real estate. It’s managing $196 billion in investor equity capital: That capital, amplified by leverage, backs $378 billion worth of in-the-ground properties.

Despite its immense size, Blackstone has shown remarkable agility. In the past several years, it has consistently delivered returns that range from low double digits for its more conservative, longer-term vehicles to well above that for its more opportunistic offerings. It has hit those marks by exiting areas that faded soon after, notably suburban shopping malls and offices in overbuilt U.S. cities, while pivoting to four categories where it previously parked little cash, but that have since prospered mightily.

Blackstone calls these tiers its “highest-conviction themes.” The group comprises logistics, suburban apartments, life sciences, and film studios. In each of them, it caught a rising wave. And for logistics, rental housing, and studios, says Kathleen McCarthy, co-head of real estate, the pandemic has “accelerated the trends already underway before the crisis.” Spreading its billions across major real estate classes and markets to dampen risk isn’t Blackstone’s objective. Says Meghji, “We concentrate our investments in places and categories where we forecast that changes in technology and demographics will build outsize demand.”

Blackstone reckoned that e-commerce would galvanize the sleepy warehouse sector; while competitors yawned, it pounced to amass the world’s second-largest portfolio of distribution centers (just behind the REIT Prologis). It bet heavily on apartments in fast-growing Sunbelt markets pre-COVID, where a recent wave of singles and families leaving downtown for the suburbs has cut vacancies and lifted rents. In targeting life sciences, Blackstone reckons that office space that includes labs researching breakthrough therapies will do much better than regular offices. And in the year since Blackstone unveiled the studio venture, the stay-at-home lifestyle has led Americans to devour new TV series as never before, prompting Netflix and its challengers to generate still more shows from an expanding footprint of offices and soundstages.

Of course, Blackstone also harbors a robust private equity franchise, but real estate is its biggest profit-spinner. The firm made headlines in recent years by assembling a panoply of trophy addresses, among them the Cosmopolitan and Bellagio hotels on the Las Vegas Strip; Stuyvesant Town, the largest apartment complex in New York City; and Embassy Office Parks in Bangalore, India’s leading destination for IT tenants. But the Big Shift to the branches that have prospered so richly in the pandemic has attracted little fanfare. And that repositioning has been sweeping indeed. A decade ago, warehouses and apartments were each just 2% of Blackstone’s holdings, and it hadn’t even started in studios or life sciences. Today, the four big themes have swelled to four-fifths of its global portfolio.

It's especially remarkable that Blackstone managed that transformation while hugely growing its total roster of properties. From the close of 2015 through Q1 of this year, it has doubled real estate investor capital from $93 billion to $196 billion. Last year, 92% of its gigantic $29 billion in new real estate investments went to its high-priority lanes. The COVID-19 economy is adding new juice that in the first quarter drove Blackstone’s real estate profits to $547 million, twice the figure in the year-earlier quarter. Over the past five years, Blackstone’s share price waxed 253%, as investors reaped 36% annual returns, a pace that beats the overall S&P 500 by 19 points.

Big funds get the best deals

Blackstone oversees two basic categories of funds, both of which tilt heavily to its four bedrock sectors. The original batch are the Blackstone Real Estate Partners (BREP) vehicles that cater to big institutional investors such as Teacher Retirement System of Texas and the Florida State Board of Administration pension fund. The BREP suite makes adventurous bets with a short time horizon. Jon Gray, Blackstone's president and chief operating officer, famously called the model “buy it, fix it, sell it.” The game plan: purchase distressed properties that are frequently run-down and empty or sparsely occupied, pump in capital to refurbish them, install a new management team, then aim to exit within five years pocketing a big capital gain, augmented by rising rents as the buildings fill with tenants. Since BREP’s creation in 1994, Blackstone has launched 17 of the funds in the U.S., Europe, and Asia that net of fees, have generated average annual returns to investors of 16%. Today, the BREP group manages almost $100 billion in properties and “dry powder” cash, making them the world’s largest single class of real estate private equity funds.

The second type falls under Blackstone’s CORE+ strategy. These portfolios encompass buildings that are already generating strong, consistent cash flows when Blackstone buys them. While BREP targets clinching windfalls on the clock, CORE+ seeks to hold properties long term, and rewards investors via rental income and appreciation driven by those rising rents. CORE+ bridges two offerings. Introduced in 2014, the Blackstone Property Partners, or BPP funds, provide annual returns in the low-double-digit range to the pension funds and endowments that also invest in BREP. In just seven years, BPP’s assets under management have mushroomed to roughly $50 billion.

More recently, Blackstone has been luring retail investors, for the first time, and in a big way. The second pillar of CORE+ is Blackstone Real Estate Income Trust, or BREIT, launched in 2017 to target the “mass affluent.” BREIT is a REIT where shares are held by investors, but those shares aren’t traded. Like the BPP funds, BREIT doesn’t buy fixer-uppers. Three-quarters of its $46 billion portfolio of almost 1,400 properties comprises warehouses and suburban apartments—two “highest-conviction” themes—chiefly in flourishing Sunbelt metros, that are fully leased and generating robust rents.

Raising gigantic funds provides billions in ready-to-go cash, and that’s a major edge in the marketplace. Blackstone is able to purchase giant holdings in a single deal, whether it’s taking a public company private or securing a sprawling portfolio. That heft provides an advantage over rivals that lack the capital to bid on those transactions. Put simply, Blackstone gets the lowest prices by buying in bulk. As Tyler Henritze, head of real estate acquisitions, told Fortune in 2020, “If a $20 million office building is for sale, you might have 20 bidders. When it’s a $20 billion deal, the competition’s a lot more limited.” Blackstone has become expert at buying packages that are too big for almost anyone else, then selling pieces at a fat profit to rivals that lacked the cash to bid on the whole deal.

A new paradigm

As the economy began recovering from the Great Financial Crisis around 2010, Blackstone’s portfolio was radically different from its current array. More than three-quarters of its properties were hotels and office buildings. In 2007, Blackstone had done two colossal deals, buying Hilton Worldwide and Equity Office Properties. Blackstone eventually sold both at a significant profit, but only after years of painstaking work to improve their operations.

By 2011, the firm was charting a new direction. Gray, who then headed real estate, along with McCarthy and Ken Caplan, the current co-chiefs, saw the strongest future in areas where Blackstone wasn’t present or had just started investing—the avenues that are now their “highest-conviction” lines. They also decided to focus those investments in two kinds of geographies: First, what Gray calls “talent” cities such as San Francisco, Los Angeles, and Seattle that are magnets for the best and brightest of tech and media; and second, the nation’s fastest-growing metros, chiefly Sunbelt stars such as Atlanta, Dallas, and Phoenix that led the nation in creating jobs as the post-crisis recovery began gaining traction. The launch of the BPP funds and BREIT widened Blackstone’s scope to include properties in tip-top condition.

On the other hand, Blackstone saw less promise in the fields that had dominated its holdings at the beginning of the decade. By 2010, Blackstone figured that e-commerce, though in its early stages, was taking sales from enclosed malls, the best asset class in previous decades. It sold its last big U.S. mall in 2012 and exited the vast majority of strip centers by 2015. Today, Blackstone’s funds hold virtually no retail properties.

As for the traditional office, Gray reckoned that the trend to squeeze more employees into less space, in cheek-by-jowl cubicles, would eventually curb demand for lower-quality buildings. In traditionally strong markets such as New York City, lots of new towers sprouted during a boom in the mid-to-late 2010s, putting downward pressure on rents. In North America, Blackstone continues to buy and hold office buildings, but mostly in cities where the tech sectors are strong and growing, notably Vancouver, Seattle, and San Francisco. “Seattle’s great for offices because it’s the cloud-computing capital of the world,” says Meghji.

Still, Blackstone has greatly reduced its overall exposure to U.S. office space during the past decade. It’s also gone much lighter on hotels, where in most of the urban markets, it saw increasing levels of building. It hence focused on larger, resort properties, in places where it’s more difficult to erect new hotels down the beach. Meanwhile, the firm started its giant shift to the four “highest-conviction” areas—with a pioneering foray into warehouses.

Learning to love warehouses

Blackstone started buying boxy distribution centers not because they looked like a long-term play, but because they were supercheap. It began making acquisitions in 2010, when the traditionally lagging, unsexy sector was hammered even worse than most classes by the financial crisis. But as Gray told Fortune in 2020, “As we watched the trends close up, we saw that a big surge in rents was coming.” Traditionally, the pace of rental increases in warehouses matched GDP growth at best. But the Blackstone team reckoned that as e-commerce gained momentum, the sector would far outpace the overall economy. Says McCarthy, “We saw a disconnect where demand was building, and little supply coming on.”

Blackstone went all-in, purchasing 18 portfolios in the U.S. and fashioning the holdings into a separate company called IndCor, owned by a BREP fund. It sold IndCor to Singapore’s sovereign wealth fund for $8.1 billion in 2015, then shipped the idea to Europe, amassing another collection of distribution centers called Logicor that it offloaded to the Chinese government’s investment arm for $14 billion two years later. The two transactions garnered annual returns exceeding 30% a year.

In the meantime, Blackstone kept bulking up on its own portfolio of warehouses. In 2019, it raised a $20.5 billion fund that ranks as the largest in commercial real estate history and used part of the proceeds, as well as capital from BREIT, to purchase 1,100 warehouses in 38 cities, including dozens leased to Amazon. At a price of $18.7 billion, it constituted the biggest single private property transaction ever. Today, four in every 10 dollars in its portfolios, a staggering $60 billion, are parked in cavernous industrial buildings.

An industry that was already thriving exploded during the pandemic, as Amazon, Walmart, Home Depot, and other giants of e-commerce shipped merchandise from groceries to soda to garden supplies to the doorsteps of stay-at-home Americans. After rising a modest 3% annually from 2012 to 2016, warehouse rents accelerated, jumping 6.5% on average for the next three years. The pace rose to 7.5% in 2020, as vacancies fell to a basement-bottom 4.6%, around half the level of nine years ago.

The boom ignited a spike in sale prices, driving the “cap rate,” net rental income for every dollar invested, from over 6% to around 4%. You might think that Blackstone would respond by moving to fresh bargain areas. Not so. Last year, it spent $9 billion acquiring more warehouses, accounting for 45% of the “in ground” capital deployed that year.

So what convinces Blackstone it will keep reaping outsize returns on those new, much pricier purchases? Blackstone’s team reckon they can still get good deals by concentrating their buys in the fastest-expanding Sunbelt metros, such venues as Atlanta, Phoenix, Dallas, Austin, and Raleigh-Durham. And within those markets, it mainly buys “in-fill” locations that are only 10 to 15 miles from the city centers. Clients are willing to pay big premiums for those superdense locales because they provide quick, often two-hour delivery, to the maximum number of “rooftops.” For Blackstone, those near-in sites offer another big advantage: It’s extremely difficult to build competing warehouses in locations that close to the cities. And again, few rivals can match Blackstone’s ability to buy multibillion-dollar portfolios, encompassing hundreds of warehouses, in a single transaction, and do it ultra-fast.

Garden apartments

Those hot Sunbelt markets are also the places where Blackstone is pursuing its major investment play in suburban rentals. As early as 2012, Blackstone’s brass saw that America was simply building too few homes and apartments. By 2015, new construction of flats was running at about half the rate needed for young folks who were entering the workforce and would eventually be seeking an apartment.

Blackstone figured that young singles residing with their parents and doubling up with roommates in the aftermath of the financial crisis would emerge from the sidelines. The forecast: A long-lasting shortage would keep rents rising briskly, ensuring that there would be few vacancies in new and refurbished garden apartments—the industry term for multifamily rentals, mostly in the suburbs, that often feature pools and park space.

That scenario was playing out before COVID struck, as rents rose consistently in the mid-to-high single digits in such top Blackstone markets as Atlanta and Phoenix. But the pandemic set the sector on a new trajectory. Even in states such as Florida and Texas, singles and families traded apartments in the city centers for roomier abodes with a deck, garden, and community pool in the suburbs. Blackstone doesn’t disclose its rental trends in individual markets, but data from other publicly traded landlords shows that rents in Sunbelt metros are now rising at almost 10% annually. Rental apartments now constitute one-fifth of Blackstone’s holdings, up from a tiny share a decade ago. BREIT holds a giant slice—74,000 multifamily units that are 95% rented, concentrated in the sunny swath running from the Carolinas to Florida, and west through Texas, Arizona, Nevada, and Southern California.

Life sciences as a real estate play

In 2015, Blackstone entered life sciences when a BREP fund paid $9 billion for BioMed Realty, one of America’s largest owners of office space and adjacent labs primarily leased to biotech companies. The deal took the publicly traded REIT private.

Unlike most of the properties acquired by a BREP, BioMed wasn’t broken. “It was widely misunderstood,” says Meghji. “Investors thought that lab space was overly specialized and too capital intensive, and underappreciated potential demand.” BioMed’s holdings traded at a discount to traditional office space that Blackstone by then was mostly shunning. The firm took the Blackstonian-contrarian stance that the life sciences space was poised for outsize growth, propelled by an aging population and fast-expanding expenditures on bio-pharmaceutical research.

But Blackstone also reckoned that to mine BioMed’s potential, it had to concentrate all of its offices in what it saw as the world’s top five centers for research: the two Cambridges (Massachusetts and the U.K.), San Diego, Seattle, and the San Francisco Bay Area. Those venues were the most attractive to pharma giants because they could rent labs and offices adjacent to such top research institutions as MIT and the U.K.’s Cambridge University, in cities that are magnets for talented researchers. As McCarthy notes, “There’s a clustering effect. The drug companies like to be both near the universities, and near each other for the intellectual richness.” BioMed was strong in all those hubs, but it also had facilities strewn across secondary locales such as New Haven, St. Louis, and Miami. “We sold off those properties and reinvested the capital in the core markets,” says Meghji. Blackstone plowed $3 billion into new labs and offices, all in those top five targets.

That growing footprint increasingly made BioMed a landlord of choice for such clients as Pfizer, Merck, and Bristol Myers Squibb. During the pandemic, the labs remained open and research kept thriving. “Our buildings were garnering stronger rents and more tenant demand than traditional offices,” observes Meghji. “The desire of investors to get into life sciences real estate greatly increased.”

That trend spawned a remarkable transaction. In October, the BREP fund that owned BioMed sold it to a newly created BPP vehicle—those are the ones that buy stable, established properties—for $14.6 billion, bagging a $6 billion gain for its investors. More than two-thirds of the money raised in BPP Life Sciences came from the investors in the BREP fund that originally bought BioMed. Just two months later, BPP Life Sciences bulked up by paying $3.4 billion for a sprawling complex of labs and offices, almost all in Cambridge, Mass., further growing its footprint in that signature research center.

Blackstone now boasts $20 billion in lab office holdings, up from virtually zero seven years ago. According to Meghji, it’s just getting started: BioMed plans to not just keep acquiring existing labs, but to build new ones in all of its five sweet spots.

The showbiz big time

Blackstone first arrived in Hollywood in 2017, when it bought a group of office towers in Burbank anchored by Disney and Warner Bros. But once again, it saw richer potential in workspaces that incorporated something special, whose proximity would make the buildings where the producers, writers, and executives worked rarer and more valuable. So in June 2020, it unveiled that it was purchasing that 49% stake in the complex on Sunset Boulevard from REIT Hudson Pacific Properties (HPP).

The complex encompasses three major studios—Sunset Bronson, Las Palmas, and Sunset Gower—featuring multiple soundstages and 1.2 million square feet of production space, along with one million feet of adjacent offices. As in life sciences, location is crucial: L.A. is the global capital of the film and TV industries, generating 50% of its U.S. wages and hosting half the soundstages in the U.S. and Canada. Netflix, for example, does a significant portion of its domestic shooting in L.A., much of it at the studios now co-owned by Blackstone.

When Blackstone clinched the deal, the studios were dark in the midst of the pandemic, and the offices mainly empty. But now production is roaring again, with as many as 10 shows filming at the same time in a single studio. Spending on new shows, which for the top seven studios increased 77% in the past three years, is growing even faster as the series in limbo ramp up. Meghji emphasizes that the Blackstone-HPP co-owners are more than mere landlords. “We act as concierges for the movie and streaming studios,” he says. “We arrange for the lighting, sound, trailers, and most other equipment, as well as for the stage managers and catering. It’s not just about being an owner, it’s about running an operating platform that’s essential to creating the content.”

Fire up the klieg lights: Blackstone has landed an action hero role in America’s dream factory.