Bloomberg News

Blackstone’s Gray Joins Board as Real Estate Rises to 71% of Firm’s Profit

February 24, 2012

Jonathan Gray, head of global real estate at Blackstone Group LP (BX), will join the firm’s board of directors after his business brought in $1 billion in profit in 2011.

“Jon has been an integral part of the Blackstone fabric for the past 20 years,” Stephen Schwarzman, Blackstone’s chief executive officer, said in a statement today. “He heads one of our largest and most successful businesses with the highest standards of excellence and integrity.”

Gray, 42, joined Blackstone in 1992 after graduating from the University of Pennsylvania. He became a senior managing director in 2000 and co-head of real estate in 2005 with Chad Pike, who moved last year to become vice chairman of Blackstone Europe. Gray, whose unit accounted for 71 percent of Blackstone’s profit last year, sits on the New York-based firm’s management and executive committees.

Blackstone and other big private equity managers have sought to diversify their businesses after the 2008 financial crisis eroded investor appetite for traditional buyouts. Blackstone’s real estate unit oversaw $31.2 billion of fee- earning assets as of Dec. 31, up 16 percent from a year earlier and 32 percent from the end of 2009.

The firm raised more than $10 billion in less than a year for its next real estate fund and is seeking $2 billion more this year, according to a person familiar with the plans. The new fund would be the biggest private equity real estate pool ever.

Biggest Buyout Ever

In June, Blackstone acquired the U.S. malls of Australia’s Centro Properties Group for about $9.4 billion, the firm’s biggest deal since the leveraged buyout boom collapsed in 2007. The transaction made Blackstone the second-largest U.S. owner of neighborhood and community shopping centers after Kimco Realty Corp.

The acquisition was Blackstone’s biggest since another real estate deal co-led by Gray, the buyout of the former Hilton Hotels Corp. in 2007 for $26 billion, including assumed debt. The year before, he orchestrated a deal between Blackstone and Sam Zell’s Equity Office Properties Trust, which at $39 billion was the biggest buyout ever at the time.

Gray has been known to be a diligent deal-chaser, skipping the 2007 Super Bowl to monitor the bidding for Equity Office and celebrating after the deal with a bottle of champagne before getting back to work. Blackstone started its first real estate fund in 1994 with $335 million when Gray was a junior-level employee under the unit’s head, John Schreiber, according to a New York Observer profile last year.

Real Estate Funds

He made his imprint in real estate when he led Blackstone’s purchase of Extended Stay America Inc., a $3.4 billion portfolio of 685 properties, after hotel values plummeted in the wake of the 2001 terrorist attacks.

Blackstone’s next real estate fund will buy mostly distressed-property assets, two people with knowledge of the plans said last month. Blackstone Real Estate Partners VII, which is expected to finish fundraising this year, follows the $10.9 billion property fund the firm closed in 2008.

The real estate unit’s primary focus this year is bankruptcies, distressed situations and non-core asset sales, Schwarzman said on a call with analysts and investors this month.

“All are being purchased at a significant discount to replacement cost,” he said. “This, along with the volume of troubled commercial real estate loans already in the system, are coming due in the next few years to drive a very active pipeline of attractive opportunities for us.”

Gray joins seven other directors on Blackstone’s board, including Schwarzman, President Tony James, Vice Chairman J. Tomilson Hill and four outside members, according to the firm’s website.

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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