Published On: Sat, Feb 17th, 2018

Jon Gray: Blackstone’s real estate chief turns heir apparent

Jonathan Gray, Blackstone’s global head of real estate and heir apparent to chief executive Steve Schwarzman © Bloomberg

One evening a few years ago, Jon Gray, Blackstone’s real estate boss who this week was named president of the US private equity firm, was having dinner on the Upper East Side of New York with a Chinese property developer.

They met at the height of the investment surge from China into trophy real estate in the US. As they drank wine, Mr Gray mentioned a potentially interesting business proposal. “Jon,” came the reply, “why would I ever take the other side of you?”

The caution was not without reason. Mr Gray has become one of the most successful global real estate investors during his 26 years at Blackstone — buying shrewdly and selling well, not least in the disposal of the Waldorf Astoria hotel four years ago to Anbang Insurance, a Chinese firm, for a record-setting price.

He is described by one long-time associate as warm and “well-grounded”. But many of those on the other side of him in property transactions have fared less well: several have even gone bankrupt.

Stephen Schwarzman, who built Blackstone into an investment powerhouse, has passed to Mr Gray the day-to-day running of the firm — and he is now considered designated heir at the group. He takes the president role from Tony James, whom Mr Schwarzman recruited to transform Blackstone from a personal fiefdom into a formidable listed institution, at a time when rivals are also lining up their own succession plans. Mr James will become executive vice-chairman.

Mr Gray combines elements of the entrepreneurial instincts of Mr Schwarzman with his own low-key style. But nevertheless he takes over at a challenging time as monetary policy tightens, competition intensifies and financial engineering becomes ever more difficult.

Mr Gray grew up with Blackstone. When he joined as an analyst in 1992 straight out of college, the young firm had only $1bn under management; today it has $434bn, of which he manages $115bn. When he took over the real estate business in 2005 it had a mere $5bn under management. Since then, his investors have received $83bn.

Mr Gray’s $26bn acquisition of Hilton Hotels, a business he managed to turn around in the teeth of the 2008 financial crisis that has become the single most profitable private equity deal ever, cemented his reputation as a dealmaker. Blackstone has at least tripled its money on the deal.

He also earned plaudits for the $39bn purchase of Equity Office Properties in 2007. No sooner had the ink dried on the purchase agreement than Mr Gray and his team began to sell the properties they deemed less attractive, anticipating the end of the real estate boom. They sold off almost half of what they had bought within just weeks, leaving buyers on the hook when the crash arrived.

But he is as proud of his purchase of the 85-acre Stuyvesant Town housing complex close to the East River in New York. Blackstone would hardly seem the ideal owner for the property, given its usual insistence on swift and high returns on its investments. Mr Gray worked out a deal with dejected tenants, wrung tax concessions and cheap loans from the city government, and paid a bargain price while promising a big portion of the flats would remain affordable.

“Investment is like a basketball game; there is a scorecard at the end of the game,” he says. “I like the intellectual challenge. The game keeps changing. What makes me different is that I take concentrated bets; I go all in. I get a firm view and then I act in scale.” Beware being on the other side of the bet.