Jon Gray is the future of Blackstone. 50 insiders reveal how the superinvestor consolidated power, elbowed out rivals, and is remaking the firm in his golden-boy image.
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Even Schwarzman told Insider that Gray "does better with people" than him."He can say difficult things in a way where you end up liking him after he's had a very tough conversation," Schwarzman said.Read more:Blackstone billionaire Stephen Schwarzman defended his support for Trump. Now his allies are trying to put distance between the two.
Schwarzman said he had turned over much of the firm's day-to-day operations to Gray. James, meanwhile, said that having groomed a successor in Gray, he has begun the process of retiring, the final step in a quiet yet seismic changing of the guard in Blackstone's C-suite.
"No one is perfect, but Jon is as close as they come," James said. "I think it might be time for me to move on, but I've got to sit down with Steve and Jon and talk about that."Insider talked to 50 people who know Gray about his path to the top of the alternative-asset management giant. headtopics.com
They revealed sides of Gray that few people outside Blackstone have seen, including the tireless focus, drive to perform, and ruthlessness behind his calm and amicable exterior.Those sharper edges were on display in a recent shake-up of Blackstone's underperforming $78 billion hedge-fund unit, BAAM, when Gray relieved the fund's head, John McCormick, of investing duties and handed them over to Joe Dowley, the head of Brown University's investment office. Another senior BAAM executive was pushed out in the shake-up.
"If I'm not on top of my business and my issues, he'll know it and we'll be talking about it," David Blitzer, a longtime Blackstone executive, said of Gray's attention to detail. "We all have to be all in, no question."
Gray's little-known power playGray can be cold and calculating when dealing with those he feels are underperformers. He exhibited those tendencies during a notable episode a decade ago, when he quietly facilitated the exit of the executive who co-led the company's real-estate group with him.
The story was recounted by a person with direct knowledge of the events and confirmed by another person close to the situation. By then, Gray was responsible for two of the largest real-estate buyouts ever, the $39 billion and $26 billion respective acquisitions of Equity Office Properties and Hilton, both in 2007, and had built Blackstone's real-estate investment business into a juggernaut. His counterpart, Chad Pike, was in London and presided over a European arm that was just a fraction of the size. headtopics.com
Gray labored around the clock, answering emails through the night and weekends. He used daily walks from his home on the Upper East Side to Blackstone's office to devour market intelligence, internal investment memos, and field calls with Wall Street glitterati.
Pike, meanwhile, had hobbies he wasn't hesitant to indulge in. He traveled with his family to exotic locales to heli-ski and became so passionate about the outdoors that he launched a side business of small luxury lodges and tours catering to sports like fly-fishing and mountain biking.
The differences between the two men had begun to grate on Gray, but at the time he didn't yet have the clout to push Pike out on his own.Instead, he went behind Pike's back and triggered a series of events that would force his colleague's ouster, according to the people familiar with the events.
Gray turned to James, whose job included sorting through internal rivalries and conflicts. The partnership between him and Pike had frayed, Gray told him, and leadership of the group could no longer remain bifurcated. Pike, he believed, had lost focus. headtopics.com
Gray described the fissure in a way that gave James the impression that Pike felt not only a mutual disaffection but also a readiness to discuss his exit from the group. James flew to London to find the young executive blindsided by the whole affair.Schwarzman was asked to step in. Pike, Schwarzman quickly decided, would be reassigned to a group within a new investment arm called tactical opportunities. Gray would be named the singular head of real estate.
"Yes, of course, I did go to London. That's a fact," James said. "But you have too much drama around it."James declined to go into specifics about the incident, but he did not dispute any of its broad details. Pike, who quietly retired in 2020, declined to comment for this story.
"I think if you talk to Chad, the tac-opps era was the most fun he has had in his career," James said.Read more:Meet the 4 dealmakers driving Blackstone's $325 billion commercial real estate portfolio. They walked us through how they're thinking about opportunities in the downturn.
Gray's drive ignites at BlackstoneAs far back as Gray's earliest days at Blackstone, his friends and colleagues described a young executive who, through charm or guile, had a knack for getting his way.Gray joined Blackstone in 1992 as an analyst. When the firm proposed that he, like many young talents on Wall Street, take a hiatus to attend business school, he finagled his way out of that path on the belief that gaining real-world investment experience would better launch his career.
Blackstone, which was founded by Schwarzman and Pete Peterson in 1987 to handle traditional private-equity investments, had by then just unveiled a real-estate investment arm. Gray trained his focus on the group, believing its nascency and small pool of executives would give him a better chance to transition from a support staffer to a more important and lucrative role sourcing and executing actual deals.
Schwarzman had recruited John Schreiber, a top executive from the real-estate investment firm JMB Group, to spearhead the effort. Gray, as it happened, was stationed in the cubicle next to Schreiber and one day popped his head over the partition.
"Could I get a job?" Schreiber said he recalled him asking bluntly.Read more:How to land a job at Blackstone, according to the private-equity giant's president and its head of HRSchreiber bonded with Gray over their mutual Illinois roots, Gray hailing from the wealthy Chicago suburb of Highland Park and Schreiber from Lake Forest. He noticed Gray's people skills, a key talent in the real-estate business, where personal connections and reputation are essential to bringing in deals. Schreiber came to call Gray "The Natural," after the 1984 film starring Robert Redford, who plays a baseball player oozing the ability to make it big in the major league.
After he worked out the details with another partner on the team, Ken Whitney, Gray was in. Having majored in English at the University of Pennsylvania, Gray's initial role was to add sparkle to the group's early marketing materials."We had to develop our story," Whitney said. "Jon took some of our thoughts about what we do, fleshed it out, and made it look pretty good."
Gray soon took on more responsibility, working on small deals just a few million dollars in size.Neither he nor his colleagues could know they were on their way to creating the biggest revenue engine at the firm.Gray hones in on a blue oceanAs the real-estate venture got off the ground, Gray showed a proclivity for spotting undervalued assets before they garnered widespread notice.
He focused on hotel deals, for instance, which in the mid-1990s hadn't yet achieved acceptance among institutional investors as a major real-estate asset class. As that changed, Gray would be there to capitalize on it.In 2001, he oversaw the acquisition of Homestead Studio Suites, an unexciting portfolio of extended-stay properties, for $740 million. It would be a game-changing opportunity for Blackstone and kick Gray's career into overdrive.
In doing the deal, Gray had an epiphany. Blackstone could acquire vast collections of real estate by buying whole companies that held property assets, rather than picking off single buildings here and there the way investors normally did. Such buyouts weren't common at the time nor were they considered economical using the expensive debt available for mergers and acquisitions. Gray instead had the idea to tap a voracious real-estate lending market, where loans were being cut into securities and sold to bondholders at far lower rates.
It was a formula Gray would use to complete a succession of multibillion-dollar deals that, in the span of less than a decade, transformed Blackstone from an obscure real-estate player into the industry's marquee investor.Gray was only in his early 30s at the time, but his legend quickly grew. He was known as scrupulous, straightforward, and hypnotically persuasive. Even in heated negotiations, he remained unfailingly polite.
"You could almost hear the other side of the phone getting louder and more frustrated and Jon would be even-keeled," Steve Orbuch, a former colleague of Gray's at Blackstone, said.While most dealmakers as prodigious and ambitious as Gray tended to leave the particulars of executing such transactions to subordinates and attorneys, those who worked with Gray said he was absorbed in details.
"What distinguishes him is his ability to telescope to the outer edges of the atmosphere and then close in on the Mariana Trench details of a situation and do it fluidly," said Roy March, who worked with Gray on some of Blackstone's largest transactions, such as Equity Office Properties.
"He knows the big picture and then he can go down to knowing what rents and vacancy and occupancy rates are in a specific location in a specific submarket. That's rare," March added.Khaled Kudsi, a young member of Blackstone's real-estate team at the time, said he remembered Gray reciting how during the company's acquisition of Hilton, which had a global portfolio of hotels, revenue would need to be collected in special lockbox accounts in places like Egypt and Turkey to meet the servicing requirements of Blackstone's securitized debt.
"Jon never said, 'Let the lawyers figure that out,'" Kudsi said.Gray worked around-the-clock. Even during outings like a yearly ski trip taken by the real-estate group to blow off steam, he was often the first to pull away from drinks at the bar and retire for the night. New hires began to look to him as a model for greatness.
In one instance, associates unfurled a mock banner that rebranded Blackstone as "Graystone" during a year-end skit in the early 2000s.'The Natural'Gray's ambition wasn't always well-received by members of the real-estate team, at least one of whom said they felt he could hog the spotlight and lobby against colleagues behind the scenes.
That person described an instance in the early 2000s when a more senior real-estate executive, with a deep knowledge of the commercial-office market, joined the group. Gray wouldn't openly disparage the executive but would often refer to him, the source said, in a way that made him seem hopelessly lost in unimportant minutiae, such as the dimensions of an office building's column spacing.
Another former colleague of Gray's said that in the 2000s, Gray made it known that he felt he wasn't being fairly compensated. Some on the team began to wonder whether he would leave the firm.Management moved quickly to smooth over the situation behind closed doors. Later, as Gray rose through the ranks, he sometimes would remind colleagues just how powerful he had become, quipping that he was the firm's second-largest shareholder after Schwarzman — a stake that firmly moved him into billionaire territory.
But among counterparties and partners in the real-estate business, Gray was beloved. His sterling reputation would come in handy.The Equity Office Properties and Hilton acquisitions closed at the peak of the pre-financial-crisis property bubble. During the subsequent downturn, Gray and his team were able to persuade lenders to
write off billions of dollars of Hilton's debt. He also convinced Blackstone's fund investors to ride through the storm, even as the firm was forced to acknowledge billions of dollars in paper losses."When you are down, having people who like you matters," another former colleague of Gray's said.Read more: Business Insider »
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