Blackstone's Crown Prince

How a dealmaker with an eye for property became the heir apparent at the buyout giant

- Jason Kelly, with Melissa Mittelman and David Carey

How do you get to the top of the private equity business? Turns out, it’s by getting really, really good at flipping real estate.

This month, Jon Gray, 48, became president and chief operating officer of Blackstone Group LP. The job sets him up to one day succeed Chief Executive Officer and co-founder Stephen Schwarzman, who’s steered the private equity firm over 30 years from a $400,000 initial investment to $434 billion in assets. The traditional core of the private equity game is corporate buyouts, supercharged with debt. Blackstone set itself apart by diversifying into hedge funds and real estate, and providing credit to companies. Gray, as head of the real estate division, expanded the portfolio into a $115 billion property giant that’s Blackstone’s top profit driver.

He did it in part with two audacious bets at what should have been the worst possible moment, just before the real estate crash and financial crisis. In 2007, Blackstone paid $39 billion for Equity Office Properties Trust, Sam Zell’s collection of 580 commercial buildings, in what was then a record leveraged buyout. The firm also bought the Hilton hotel chain for $26 billion. Blackstone and its investors eventually earned profits of more than $20 billion from those investments. But it was a grind: Gray had to get his partners to kick in $800 million more before the Hilton transaction turned around.