Blackstone senior managing director and co-head of its real estate group Jonathan Gray explained the company's decision to acquire Hilton.
Editor’s note: This article was originally posted on 11 July 2008. The article was chosen as part of Hotel News Now’s look back at 10 years of the hotel industry.
NEW YORK—Nearly a year after beginning the process of a $27-billion deal to bring Hilton Hotels Corp. under the Blackstone Group’s umbrella Blackstone executive Jonathan Gray said during the opening session of the 30th Anniversary NYU International Hospitality Industry Investment Conference that remains positive that he made the right call.
“We have bought nine public lodging companies in the last 10 years, and in each of them people told us we overpaid,” Gray, Blackstone’s senior managing director and co-head of the real estate group, said after being asked by moderator Lalia Rach if he thought he overpaid for Hilton. “The performance has greatly surpassed our expectations.”
He said that the attraction to Hilton was obvious as one of every four hotels under construction in the U.S. carries one of the Hilton brands and the rejoining of Hilton and Hilton International in 2006 provided a great backdrop.
He also sees a big upside for the Beverly Hills, Calif.-based company.
“Hilton really had an area of opportunity in the upper end,” he said.
Blackstone long has been a player in the luxury hotel segment, and that’s where a lot of focus is going to be placed.
To help speed up its upper-end offerings, Chris Nassetta, Hilton’s president and CEO, announced the hiring of Ross Klein and Amar Lalvani. Hilton lured the two executives from rival Starwood Hotels & Resorts Worldwide. Klein will serve as global head of luxury and lifestyle brands and Lalvani is Hilton’s global head of luxury and lifestyle brand development.
Gray said the company soon will announce a new luxury boutique hotel brand. In addition, it will dissolve the LXR Luxury Resorts & Hotels division and move properties within that group of hotels and resorts to other brands in the Hilton family.
“This company is underpenetrated on the luxury side,” Gray said.
The company will continue to operate the economy segment La Quinta Inns & Suites brand as a separate company, Gray said.
“It just didn’t fit (with the Hilton brands),” Gray said. “We want to make decisions in the best interest of each company.”
Gray said the La Quinta purchase two and a half years ago in some ways paved the way for the purchase of Hilton.
“Our very positive experience with La Quinta is one of the things that we looked a with Hilton,” Gray said, adding that La Quinta provided an opportunity to see how a franchising program enhanced Blackstone’s bottom line.
Gray said he expects Blackstone to maintain its stake in the lodging industry—which it entered 16 years ago—for the foreseeable future.
“I would be shocked if we didn’t stick with lodging,” he said. “We have developed a lot of expertise.”
He added that the industry’s cyclicality—the very thing that chases some other institutional investors away from hotels—is what attracts him and Blackstone to the sector.
Gray, who has eschewed interviews during his tenure at Blackstone, said it’s an ideal situation for him.
“I get paid to do something I absolutely love,” he said. “It makes it exciting to wake up every day and ask ‘how can I invest capital?’”
Downplaying his reputation as a fierce negotiator, Gray said the lodging environment is something special.
“You have to take some risks, particularly in this environment,” he said. “The greatest opportunities are when you are prepared to step in when other people are running away.”