Blackstone: the private equity firm next door?

One DD winner to start: Congratulations with Hugues Lepic, the head of the London-based Aleph Capital Partners, for winning Thursday’s title match in a British artist’s photo Damien Hirst and former Governor of the Bank of England Mark Carney. Here’s his entry:

— Look Mark, I haven’t converted anything into money!

— Yes, Damian, but I haven’t turned money into anything.

Our number two, Rob Butler, scored extra points by adding speech bubbles to his entry, as shown below.

© Joe Hage © Damien Hirst and Science Ltd, DACS 2021 as amended by DD reader Rob Butler

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Blackstone Makes Another Huge Real Estate Purchase

This week, black stone made its second big bet on US homes in less than a month, buying a $5.1 billion apartment portfolio from an insurance group AIG after spending $6 billion to acquire single-family home, buyer and operator Home Partners of America last month.

The buildings are not particularly fancy. Here’s one owned by AIG in the Bushwick neighborhood of Brooklyn:

420 Stockholm Street in Bushwick, Brooklyn © Google Street View

AIG originally acquired the building, known as Stockholm Manor, as part of a 1999 loan that paid for the renovation of 34 apartments with help from a federal program known as the Low Income Tax Credit.

The scheme, which provided financing to all buildings Blackstone buys, provides grants to developers who agree to limit rents to less than 20 percent of the local median income while limiting the number of high-earners they accept as tenants.

Blackstone has pledged to abide by those restrictions, which typically last for decades, but their eventual expiration could provide financial investors with an opportunity to earn returns.

Stephen Schwarzman, Blackstone CEO © FT

In recent years, AIG and RiseBoro Community Partnership disagreed on whether the insurer could be forced to sell the building under the terms of the contract they signed.

If not, RiseBoro noted, a for-profit owner could eventually start renting out the apartments at market rates.

The case is now before a federal appeals court. It could have far-reaching implications for financial investors such as AIG and Blackstone who have provided funding under the LIHTC scheme – and for the long-term availability of affordable housing for low-income families.

The stakes are high enough that the New York State Attorney General… Letitia James has weighed. “It is as damaging as it is unethical that private investors try to twist the terms of this affordable housing program for their own financial gain,” she said in April.

Letitia James, New York State Attorney General © AP

The company run by billionaire Stephen Schwarzman is one of the largest owners of US real estate, with a portfolio that includes warehouses and suburban single-family homes, specialty life sciences buildings in Boston and Cambridge, and the Bellagio resort in Las Vegas.

Blackstone pioneered large-scale investment in American housing in the years following the financial crisis. Now it returns to that lucrative but politically controversial strategy.

Members only . . . but share for everyone

The key to Nick Jones‘ doing business is discretion.

Soho House, the British entrepreneur’s private members’ club, may have 30 locations around the world, but its identity is built on exclusivity.

But as of this week, investors can now feel like they’re part of it. The company raised $420 million on its trading debut and sold its shares for $14 a share, at the lower end of the range it had offered to investors.

While Soho House traded at a valuation of $2.8 billion, its shares fell 9.6 percent on the first day of trading.

Nick Jones of Soho House © Charlie Bibby/Financial Times

“I never thought I’d be here with the FT on a Monday morning pre-float,” Jones, who founded the club 26 years ago, told FT’s Alice Hancock. “I was just hoping to survive 1995.”

Now, celebrities like Kate Moss and the aforementioned NFT artist Damien Hirst often are excavations. But other than giving people a good time, it’s hard to see how the business model will thrive.

The company seems to be in a perpetual loop of borrowing money, paying interest and trying to pay off debt.

Finances were in the red before the pandemic. Last year, sales fell 40 percent to $384 million, while losses rose to $236 million.

About 41 percent of revenue in the first quarter of this year was used to pay off $600 million in debt interest. The proceeds of the IPO will be partially used to reduce that amount.

As the muted response to the IPO suggests, Soho House – aka Membership Collective Group, as it was renamed for the IPO – has not been profitable in its 26-year history.

The extension of Soho House

Instead, the group has mapped out an aggressive growth strategy with the help of deep-seated shareholders like the US billionaire Ron Burkle and hospitality tycoon Richard caring.

The company hopes to lure investors with its aggressive expansion as it pushes ahead with plans to open homes in Nashville, Portland, Palm Springs and more.

Soho House in LA © Soho House

Nevertheless, MCG aims to be net profitable by 2022, although we will believe it when we see it.

The bizarre story of a crypto king

Giancarlo Devasinic is probably not someone you’ve heard of.

But after a career in plastic surgery, trading computer hardware and building a healthy food delivery service, Devasini is now known for something completely different: creating an empire at the heart of a boom in global cryptocurrency.

Unlike the typical crypto vanguard, he shuns the mainstream press and keeps his online presence to a minimum.

Giancarlo Devasini’s ‘merlinmagoo’ Skype account lists São Tomé and Principe, an African island nation close to the equator, as its location © Ulrich Hollmann/Getty Images

Nevertheless, the elusive chief financial officer of cryptocurrency “stablecoin” Tether and major crypto exchange Bitfinex is a central figure in the wild west of unregulated finance.

Skeptics, including New York Attorney General Letitia James and Eric Rosengren, the chairman of Federal Reserve Bank of Boston, have made it clear that Tether poses a risk to financial stability.

Line chart showing how Tether has maintained its dominance over other stablecoins by showing market caps

But the eclectic entrepreneur, who goes by the alias “Merlin”, has no shortage of fans either, as Tether — an essential financial lubricant for investors getting in and out of more volatile cryptocurrencies — is exploding in popularity.

Our FT colleagues Kadhim Shubber and Siddharth Venkataramakrishnan describe the mesmerizing rise of the Italian crypto character in this must-read piece.

Job moves

  • Linklaters has named Paul Lewis as the new company-wide managing partner, successful Gideon Moore. He was previously the head of Linklaters‘ finance division and co-head of the innovation group.

  • Corporate Restructuring Lawyer Jon Henes leaves Kirkland & Ellis to start a strategic consulting firm focused on business, law, politics, social justice and diversity. He has worked at Kirkland in New York since September 2001.

smart reading

WeCrash Adam Neumann devised an everyday real estate plan in an empire. SoftBank’s Masayoshi son, once predicted, would reach $10 trillion by 2028. Looking back, the red flags were always there, Eliot Brown and Maureen Farrell tell in their new book, The cult of us. (FT)

Breaking Barriers Racial inequality is rife among M&A law firms, with data showing that only 2 percent of partners are black and less than 1 percent are black women. Those who have broken the mold are beginning to give way to a future of diverse deal makers. (BBG Wet)

Back to the Bay Tech workers vowed never to return to San Francisco after fleeing to bigger and cheaper spaces during the pandemic. But Silicon Valley’s allure is harder to shake than they thought. (NOW)

News overview

Self-driving car start-up Aurora goes public in $11 billion Spac merger (FT)

Jack Dorsey Says Square Will Launch Bitcoin DeFi (FT) Platform

Revolut Valued at $33 Billion After $800 Million Fundraising (FT + Lex)

Deutsche Bank’s Spanish mis-selling scandal expands (FT)

UK-listed cybersecurity group Avast in takeover talks with NortonLifeLock (FT)

Sydney Airport rejects $17 billion bid as investors focus on infrastructure (FT)

US regulator under fire for delays in delisting Chinese stocks (FT)

Intel is in talks to buy GlobalFoundries for about $30 billion (FT)

The prospects for merger of UniCredit and state rival MPS (FT) bleak

SoftBank invests $1.7 billion in Yanolja ahead of IPO (BBG)

Morgan Stanley equity unit revenues offset trading slowdown compenseren (FT)

Boom times for elite investors in Silicon Valley (FT Opinion)

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