Gray's real estate business now counts $115 billion in assets under management, a more than sixfold increase from before the crisis. Last year alone, the division sold $24.5 billion in property and made $20 billion worth of new investments. Some $24 ...and more »
Jonathan D. Gray, global head of real estate at Blackstone Group. Photographer: Victor J. Blue/Bloomberg Jonathan D. Gray
When private equity giant Blackstone Group went public in 2007, fewer than a quarter of its $79 billion in assets under management were tied to real estate. Soon after the listing came the worst real estate downturn in at least a generation and it sat at the epicenter of a severe financial crisis. That tumult proved to be an opportunity for the head of Blackstone's real estate business, billionaire Jonathan Gray.
The unit navigated the crisis as other firms faltered. Gray's seminal deals like the takeovers of Equity Office Properties and Hilton succeeded, a contrast to competitors' troubles with Caesars and Archstone. Afterwards, Gray helped create Invitation Homes and Logicor, and oversaw mega deals like GE's real estate portfolio, the Willis Tower in Chicago and Peter Cooper Stuyvesant Town in Manhattan. For the performance, Blackstone has been richly rewarded. Gray's real estate business now counts $115 billion in assets under management, a more than sixfold increase from before the crisis. Last year alone, the division sold $24.5 billion in property and made $20 billion worth of new investments. Some $24 billion of money flooded into the unit, which generated half of Blackstone's overall revenues.
The great success of Blackstone's real estate foray has meant Wall Street believes Gray, who's spent 26 years at the firm after being hired out of University of Pennsylvania, will one day take its reins. On Tuesday, that speculation sharpened when Blackstone named Gray as president and chief operating officer, putting him in charge of the day-to-day management of the $434 billion in assets investing giant.
Gray will replace longtime president Tony James, who will become executive vice chairman and continue with a full-time role. The move is part of a careful succession at Blackstone. “The appointment of Jon as President and COO lays the foundation for the next generation of senior management and positions the firm well for future leadership," said Blackstone's billionaire co-founder and CEO Stephen Schwarzman. "I’ve learned over the last 26 years that Jon Gray has great judgment, enormous energy and unique personal charisma, which has enabled him to garner enormous respect within the global financial community," he further said.
Added James, also a billionaire, "One of my most important responsibilities is succession, and I am blessed to have a spectacular leader and investor like Jon Gray to whom I can hand the reins."
Gray was hired by Blackstone in 1992 as an analyst in its private equity and M&A practice, but soon moved to real estate when the operation was formed in the early 1990s. He really began to garner major attention on Wall Street during the LBO boom of the mid-2000s when, as co-head of the unit, he oversaw the joint takeover of Trizec and the LBOs of Equity Office Properties and Hilton.
With Equity Office Properties, Gray's team quickly sold off portfolios of non-core assets, putting the deal in good financial shape ahead of the downturn. It eventually yielded a profit of many multiples of Blackstone's cost. In Hilton, Blackstone and Gray had a number of gut checks in which the firm doubled down and convinced limited partners to follow suit. Ultimately it panned out, leading to an over $10 billion profit.
After the crisis, Gray's unit oversaw the creation of Invitation Homes, the nation's largest single family home rental firm, which now carries a market cap exceeding $11 billion. It also bundled logistics and warehouse assets together, building Logicor the largest logistics and distribution company in Europe. Last year, the firm sold Logicor for $14 billion in its biggest-ever real estate sale.
Other big recent deals include the $18 billion acquisition of GE's real estate assets and the purchase of Stuyvesant Town / Peter Cooper Village, an 80 acre property with 11,200 units in Manhattan. In that deal, Gray threaded the needle of fraught New York City politics and the scar tissue from Stuy Town's bankruptcy after a 2007 LBO. It also gave heft to a new core investing platform that has a longer duration.
Now Gray, worth $2.6 billion according to Forbes' Real Time Net Worth Rankings, is shedding his real estate dealmaking cloth after building an industry heavyweight. He will oversee Blackstone's operations, which span private equity, credit investing and hedge funds, reporting directly to CEO Schwarzman. Ken Caplan and Kathleen McCarthy will take Gray's role as co-heads of Blackstone's real estate operations.
“Despite our tremendous success to date, I am quite excited about the opportunity to continue to innovate for both our investors and shareholders," said Gray.
Meanwhile, James will take on more responsibility at the board level as executive vice chair. Said Schwarzman, “Tony James has had a bigger impact on Blackstone than anyone in the firm’s history... He has put in place the internal processes that are the bedrock of the institutionalization of our firm."
Among Gray's big philanthropic endeavors are his alma mater UPenn, where he's donated $30 million to support cancer research.
Across Wall Street, succession planning has been a major story for the past 18-months.
With Blackstone's shuffle, there's been change atop most major financial institutions. A month ago, JPMorgan named two co-presidents and co-COO's, sharpening its succession plans for when CEO Jamie Dimon steps down. Just over a year ago Goldman Sachs, headed by Lloyd Blankfein, named investment banker David Solomon and CFO Harvey Schwartz as co-presidents, firming up its succession plans.
In private equity, firms like KKR, Carlyle, Apollo Global and Ares have all announced or set the stage for a second generation of leadership. Now Blackstone, the industry's biggest player, is also laying out its succession plans.
For more on Blackstone:
See our 2016 cover story on Schwazman, titled "The Master"
Also see Schwarzman's comments for Forbes' 100th anniversary issue
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