Narrated by JT Chapman from Second Thought
In January a massively powerful landlord sued to evict hundreds of tenants across the country.
The landlord had bought up billions of dollars of real estate when prices were low during the pandemic–taking advantage of the economic downturn that hurt so many.
And now that eviction moratoriums are lifting, that landlord is starting to kick people out of their homes.
Here he is at the height of the pandemic.
Stephen A. Schwarzman is the co-founder, chairman, and CEO of Blackstone Group, the world’s largest alternative asset firm with almost a trillion dollars in assets–including real estate. The firm has made Schwarzman very, very rich.
And he’s not afraid to flaunt it.
One example: his 60th birthday party reportedly cost between 3 and 5 million dollars.
It was hosted by Martin Short. Patti LaBelle sang a song written for Schwarzman. And it was held in an exact replica of Schwarzman’s apartment built for the party.
Here’s the egregious part: Schwarzman’s big bash was in 2007, just as the economy was on the precipice of a disaster caused by people like Schwarzman.
That same year Blackstone had their IPO, netting Schwarzman hundreds of millions of dollars instantly.
Sensing a theme here? It’s not just COVID and recession profiteering:
Major economic downturns and national crises have coincided with hugely profitable milestones for Blackstone… and Stephen Schwarzman
This is The Class Room from More Perfect Union, and today we’re looking at how Stephen A Schwarzman got rich.
Like many great stories of people plundering America, this one starts at Harvard Business School.
Schwarzman was raised in the suburbs of Philadelphia then went to Yale, where he joined Skull and Bones, the infamous and… kind of corny secret society.
Then to Harvard Business School and then on to the finance world. Schwarzman landed at Lehman Brothers, then a vastly powerful investment bank shortly after getting his MBA.
At Lehman he worked in mergers and–helping the firm scoop up other businesses–until he eventually oversaw the absorption of Lehman Brothers itself into American Express.
He left Lehman, and in 1985 started his own firm–Blackstone. He teamed up with his Lehman colleague Peter G. Peterson, former Secretary of Commerce under Nixon.
Despite the founders’ pedigree, they tried to push the scrappy startup image in the press. The New York Times wrote in 1987 that Blackstone “operates out of cramped quarters… where secretaries and bankers share offices and boxes are stacked in the hallways”
Blackstone started as a mergers and acquisitions consulting firm before transitioning into merchant banking and private equity.
It wasn’t a great time for investing—but Blackstone got lucky: they had finished raising money for their investment firm just days before the crash.
And it was all part of their strategy. The New York Times pointed it out that year with the headline, “A Big Fund Ready to Capitalize on Hard Times”
In the early profile, published right after Black Monday, Schwarzman’s business partner admitted that their strategy involved taking advantage of economic downturns.
”There are going to be fascinating opportunities… There’s a good chance the dollar will continue to fall, interest rates over the long term will go up and we will experience slow growth… You raise capital when you can raise it, and then you move in opportunistically and make investments in distressed industries.”
It’s a business model based on profiting when everyone else loses.
If we fast-forward through 20 years of Blackstone pioneering and perfecting the private equity and leveraged buyout, tearing apart businesses to maximize profit, we get to their IPO–that’s when a company goes from private to public so that anyone can buy shares on the stock market.
The IPO made Schwarzman 500 million dollars.
Once again months later, the greed of Schwarzman’s colleagues in finance made this happen
Because the collapse was directly linked to housing millions of working Americans had their homes foreclosed, meaning they were available to buy for cheaper-than-usual rates.
So Blackstone swooped in. According to reporting from the Neighborhood Assistance Corporation of America, “Blackstone was one of the first private equity firms to begin buying foreclosed homes in the wake of the financial crisis, fixing them up and renting them out.”
So as Americans suffered, Blackstone profited three times: their backers and investment companies were directly responsible for the crash, some of those entities got government bailouts, then after everything crashed, they bought up property at rock-bottom prices.
It’s the exact strategy Schwarzman’s business partner outlined in 1987: “you move in opportunistically and make investments in distressed industries.”
Blackstone was able to buy millions of dollars in cheap housing, which gave a jumpstart to their real estate business.
Post-recession exploitation was just one big push in Blackstone’s journey towards becoming one of the biggest landlords in America.
Today, they own nearly 300 billion dollars in real estate.
Real estate accounts for nearly half of their earnings. Schwarzman called their profiteering on housing “the most remarkable results in our history on virtually every metric.”
But then another downturn: COVID. When the pandemic that killed nearly 7 million people drove down real estate, Blackstone scooped up billions of dollars worth of homes.
And now that eviction moratoriums are starting to lift, Blackstone is kicking tenants out of their homes. And they’re happy about it: the Financial Times reported that on a global call with Blackstone staffers, the head of real estate optimistically shared that they’re allowed to start evicting people again.
They even brag about how inflation lets them jack up rents, gleefully pointing out in this investor document that rent went up more than inflation.
Blackstone makes money when the rest of us suffer. It’s by their own admission a huge part of their business strategy.
And Schwarzman fights to keep as much wealth as possible. When the Obama administration almost started taxing people like Schwarzman fairly, he compared them to Nazis.
That’s why he donates so much money to the GOP: they protect his interests. Blackstone earnings reports even say that a Democratic government is bad for their business.
Blackstone admits they need unfair taxation legislation to make as much money as they do, they write to investors, “If we were taxed as a corporation, our effective tax rate would increase significantly…. it would materially increase our tax liability, which would likely result in a reduction of the value of our common units.”
And meanwhile Schwarzman tries to launder his image by making big donations to some of America’s most iconic institutions, and slapping his name all over their buildings–like at the New York Public Library, Yale, Harvard, and more.
But like so many like him, Schwarzman will continue to exploit tax law, exploit economic tax returns, and continue to get richer while the rest of us suffer.
Effective legislation hitting Schwarzman’s main sources of income–like carried interest–would make it harder for his entire industry to profit off working Americans’ losses.