Trump & Co.
Trump's Billionaire Club, Part 2: Stephen Schwarzman
By Gin Armstrong, Molly Gott and Aaron Cantú
Stephen Schwarzman is the private equity billionaire in charge of Donald Trump's Strategic and Policy Forum, a group of CEOs who will advise the president-elect on economic policy.
Schwarzman has known Trump for years, but did not publicly support him during the campaign. Now, however, the president-elect is leaning on him heavily for help in lining up the support of Wall Street and corporate America. The panel is very much Schwarzman's: he is the chair of the panel and also picked all of its members. That selection process culminated with Trump exclaiming "What terrific people!" as detailed in this interview.
In this role, Schwarzman will have a direct line to the President and could have a heavy hand in influencing the administration's policies. He is already very excited about the policy inclinations of the new administration; at a recent Goldman Sachs conference, he predicted a coming wave of deregulation and tax cuts that would change the "architecture of the world."
These policies could also make Schwarzman even more wealthy. He is the CEO of the private equity firm Blackstone Group, a massive investment vehicle which generates profits in large part through the strategic avoidance of taxes and regulatory oversight (more about his investment empire is below). If Trump and Schwarzman have their way, this will get even easier, and even more profitable. Not that he needs the money – he made $811 million in compensation last year, and is worth $11.1 billion.
Schwarzman shares some key personality traits with the President-elect: unabashed lavishness, offensive analogies, and a taste for real estate. One Slate feature on Schwarzman – "The Golden Ass" – described him as a "titan of self indulgence" and detailed his love of $400 stone crabs and his strict no-squeaky-rubber-soled-shoes policy for his house staff. When he threw an infamously luxurious party for his 60th birthday party, Donald and Melania Trump were among the guests. The $3 million dollar affair treated guests to performances by Rod Stewart and Patti LaBelle and a large portrait of Schwarzman, which usually hangs in his living room, was on display.
Epitomizing the wisdom that money cannot buy class, Schwarzman equated the timing of a 2008 business deal to being a "noodle salesman in Nagasaki when the atomic bomb went off." In 2010 he compared President Obama to Hitler over a potential tax increase on private equity firms like Blackstone. He eventually apologized for that one, calling it an "inappropriate analogy."
As for real estate, Schwarzman told The New Yorker; "I love houses. I'm not sure why." The billionaire has acquired over $100 million in personal property around the world including estates in East Hampton and Saint-Tropez, a beachfront villa in Jamaica, and a sprawling Park Avenue apartment that was once owned by John D. Rockefeller Jr., where his neighbors include Steven Mnuchin, Trump's Treasury Secretary. He also has a 11,000 square foot mansion in Palm Beach, a favorite location among his finance industry colleagues, where he was busted for using 7.4 millions gallons of water during a record dry season in the region.
Who: Stephen Schwarzman
Key organizations: The Blackstone Group, Trump's Strategic and Policy Forum
Net worth: $11.1 billion
Active geographies: New York City
Stephen Schwarzman's network: Schwarzman, like his other billionaire brethren, is an active donor in high profile philanthropic circles, and a director at several nonprofit institutions. He brags that "every fund-raiser that he has chaired or at which he has been the honoree has set a new record."
Like Trump, Schwarzman does not shy away from opportunities to get his name attached to a prominent building or program. In 2008 he donated $100 million to the New York Public Library and now has a building bearing his name. Another $100 million donation in 2013 secured his name to the Schwarzman Scholars program, a program modeled after the prestigious Rhodes Scholar program. In 2004 he donated enough for his former Pennsylvania high school to build a new football stadium, The Stephen A. Schwarzman Stadium, and in 2015 he donated $150 million to Yale University, his alma mater, to establish the Schwarzman Center.
Schwarzman is a director at the New York Public Library, chairman emeritus at the Kennedy Center, an executive committee member of the Partnership for New York City, and more.
Explore Schwarzman's network of influence in the map below.
The Blackstone Group investments: Schwarzman's Blackstone made some of its biggest bets and profits during the housing collapse. In an interview with The Wall Street Journal Schwarzman described how he saw profit potential in the crisis:
"We said, 'Oh my goodness, this could be huge. Nobody is going to be able to borrow, they're going to need housing,'"
As thousands of families lost their homes, Blackstone was there to snap them up. The firm spent an estimated $10 billion to acquire over 50,000 properties, the "biggest home-buying spree in history." They bought so many houses from foreclosure markets that it became the largest owner of single-family rental homes in the nation, and ultimately the largest real estate investor in the world. In 2013, 70% of Blackstone's performance fees came from its real estate wing. These profits directly enriched Schwarzman, who was paid nearly $700 million the next year, more than any other CEO of a public company. Blackstone is now using this same formula abroad, taking advantage of the housing downturn in Spain.
Wall Street landlords like Blackstone are one of the key drivers of gentrification and skyrocketing housing prices that lock families out of home ownership and force them into rental properties. In Phoenix, where Blackstone first began it's rental binge, home prices have jumped 57.5% in just 4 years. While Blackstone claims to spend $25,000 fixing up each rental property, a survey conducted by Strategic Actions for a Just Economy (SAJE) found that 46% of renters living in Blackstone properties reported issues with plumbing. Other survey responses showed issues with bugs and rodents, mold, and leaking roofs.
Even with these issues Blackstone sustains large profits through their rental properties by buying in areas where tenants are likely to absorb rent hikes and other issues, such as top school districts where parents might be reluctant to move. However with rents rising faster than wages, rental evictions are reaching an all time high. In a recent report, real estate brokerage firm Redfin estimated that 2.7 million people faced eviction in 2015.
CDO 2.0?
Blackstone found an additional way to profit off of their newly acquired properties that closely resembled the collateralized debt obligations (CDOs) that prompted the housing collapse; instead of the usual mortgage-backed securities, Blackstone would sell bonds with bundles of rental payments from the properties it now owns. Since introducing this practice in 2013, Invitation Homes, the company formed by Blackstone to manage its rental properties, has raised around $5.3 billion from these rent-backed securities.
Another major Blackstone investment, SeaWorld, was purchased from Anheuser-Busch for $2.3 billion 2009. When the company was taken public in 2013, Blackstone sold $560 million in stock and brought in even more in dividend payments. The documentary Blackfish, which revealed the inhumane living conditions of SeaWorld's animals and focuses on the death of a trainer, went public shortly after SeaWorld's IPO and sparked an intense backlash that included boycotts of the park. In an apparent attempt to salvage his investment, Schwarzman blamed the SeaWorld trainer killed by the orca featured in Blackfish for her own death, contradicting court testimony from company officials who said she was not to blame. Blackstone still owns over $262 million in SeaWorld stock.
Kosmos Energy
Between 2004 and 2008 Blackstone partnered with fellow private equity behemoth Warburg Pincus to invest $800 million in the newly formed Kosmos Energy to help it explore and develop oil drilling opportunities in West Africa, resulting in the discovery of Jubilee, Ghana's first commercial oilfield. Kosmos' quest for oil in Ghana was the subject of the critical documentary "Big Men", which followed company executives as they wined and dined Ghanaian officials and navigated regulators to secure rights to the oilfield and ultimately please their investors.
The question about how the discovery would impact the average Ghanaian remained largely unanswered as the corporation, local government, and militant groups battled for control over the lucrative find. However, a review in Slate noted that the true "big men" in the film were the faceless investors back in the US: "As Warburg Pincus partner Jeffrey Harris explains in passionless terms, they are interested in only one thing: a sizable return on their high-risk investment."
Blackstone Senior Managing Director Prakash Melwani and Blackstone Energy Partners CEO, David Foley, currently sit on the Kosmos board of directors.
According to 9/30/2016 13F, Blackstone's largest equity holdings include:
Stock Market Value % of Portfolio % of Ownership
Hilton Worldwide $ 10,382,505,000 59.99% 47.08%
Michaels Companies $ 1,218,012,000 7.04% 7.34%
Performance Food Group $ 1,156,077,000 6.68% 5.79%
Kosmos Energy $ 618,902,000 3.58% 2.43%
Extended Stay America $ 534,451,000 3.09% 2.94%
La Quinta Holdings $ 393,235,000 2.27% 1.85%
Hudson Pacific Properties $ 283,547,000 1.64% 1.16%
SeaWorld $ 262,888,000 1.52% 1.29%
Vivint Solar $ 260,256,000 1.50% 1.17%
Other high profile Blackstone investments include:
Name Location Description
The Breakers Resort Palm Beach, FL 5 star resort
Cheniere Energy Houston, TX Oil and gas company building fracked gas export terminal in Sabine Pass, Texas
Crocs Niwot, CO Shoe manufacturer
Gianni Versace Milan, Italy Luxury fashion company
Blackstone Group investors:
Like most private equity firms, Blackstone's investors include ultra-wealthy individuals and institutional investors such as pension funds, university endowments, and charitable foundations. Blackstone's numerous public pension fund investors include The New York State Common Retirement Fund, The California Public Employees' Retirement System, The Maryland State Retirement and Pension System, Pennsylvania Public School Employees' Retirement System.
Further reading on Stephen Schwarzman:
The American Prospect, "Hedge Funds: The Ultimate Absentee Landlords"
The Wall Street Journal, "Wall Street as Landlord: Blackstone Going Public with a $10 Billion Bet on Foreclosed Homes"
The New Yorker, "The Birthday Party"
In the Series:
Trump's Billionaire Club
As Trump border cruelty deepens, Buffalo elites maintain lucrative ties to CBP and ICE
Bank of America Says It Will Stop Financing Private Prisons & Detention Centers. So Should SunTrust.
Buffalo Banks Are Financing the Climate Crisis