Up next in 10
The Billionaire Who Owns New York
4K views
Dec 11, 2024
This secret billionaire created a powerhouse that now owns New York. ✉️ Learn the secrets of legendary traders and investors: https://bit.ly/47pcTJT --- Videos are intended strictly for information, education, and entertainment purposes. Do not base any investment decisions based upon these materials. Please read the disclaimer: https://analyzingalpha.com/disclaimer
View Video Transcript
0:02
it's an ordinary night on Broadway as theater goers rush to their seats eager to enjoy a Timeless production of in the
0:09
heights but for one man the real drama isn't unfolding on stage it's gripping
0:14
him like a vice directly in his hands the final draft of a 221 page prospectus
0:21
delivered right before the show that will result in Wall Street either catapulting his dreams into reality so
0:27
how do you win the game or shattering them against the Rocks the stock market is opening in the red this morning after
0:33
a rough finish last week on a weaker than expected jobs report the stakes a
0:38
staggering $4 billion in the validation he's longed for since he was a kid as
0:44
the actors on stage sing their final song it's Steven schwarzman who prepares for the performance of his
0:51
[Music] life the story starts in 1947 in
0:58
Philadelphia Pennsylvania where Steven schwarzman was born into a middle class Jewish Family his father
1:05
Joseph schwarzman owned a family business called schwartzman's curtains and linens where he sold you guessed it
1:11
curtains and linens it was here that young Steven first dipped his toes into the business World sure it wasn't quite
1:18
Wall Street but every Finance year has to start somewhere right Steven was only
1:24
10 years old when he started working at the store and earning 10 cents an hour wasn't exactly enough to earn him a
1:29
title in Forbes Magazine yet but it was clear from the start that Steven was an ambitious young man who always wanted
1:35
more when he asked his grandfather for a 150% raise of course Grandpa schwarzman
1:41
turned him down Steven often messed up calculations on how much fabric was needed for drapes so there was no way he
1:48
was getting 25 cents an hour but this didn't deter Steven's Drive in fact he
1:54
saw a lot of potential for schwartzman's curtains and linens young Steven figured
1:59
why stop at selling fabric to the fine folks of Philly why not expand and have stores all over the country yet when he
2:06
brought the idea up to his father Mr schwarzman was less than thrilled content with the humble life he built
2:13
for himself he had no desire to turn the shop into a chain and while Steven loved
2:19
his dad he couldn't have been more different from him in this regard you'll see just what I mean by that lader it
2:25
was hard for me to imagine how a smart person wouldn't want to do that cuz it was just right there but during his
2:32
youth St would continue selling linen handkerchiefs to customers until it was time to go off to
2:38
college his first choice the prestigious Harvard University though it seems
2:43
Steven might have been dreaming a little too big he was rejected but what does a motivated dreamer like schwarzman do
2:51
calls up the director of admissions to warn him you've made a mistake but Harvard didn't yield so
2:57
Steven was forced to settle for his second Choice Yale another respectable Ivy leak school with a Discerning
3:04
acceptance rate now in High School St had excelled in all his classes even earning himself
3:10
the title of student council president but Steven initially struggled during his time at Y and even had to seek out
3:17
extra help from a trusted English Professor but don't feel too bad for our protagonist it wasn't long before he was
3:24
back on track earning straight A in a coveted spot on the dean list
3:30
in 1969 Steven graduated yil with a degree in social sciences now you might
3:35
be thinking wait social sciences why not Finance well Steven had always enjoyed
3:43
studying people and he didn't know that one day he'd be the king of capital when he chose his major I didn't even take an
3:50
economics course uh at Yale I I frankly wasn't much good with math in fact it
3:57
wasn't until after graduating that he took his first shaky steps into the world of Finance Steven landed himself a
4:04
gig at an investment banking firm called Donaldson lkin and Jett he was offered a $10,000 salary but in true schwarzman
4:12
style negotiated it up to 10,500 however his time at this firm was
4:18
relatively short while Steven enjoyed having an office with a beautiful view of Manhattan he was discouraged by wall
4:24
Street's endless roles and regulations one of his first tasks on the job was invest investigating a new
4:30
chain of German style sausage restaurants naturally schwarzman with his insatiable appetite dove in head
4:37
first visiting their headquarters in probing for relevant information but his enthusiasm quickly
4:43
turned to bewilderment when his boss reprimanded him for violating SEC regulations a role Steven thought would
4:50
have been nice to know in advance at the time Steven thought to himself Wall Street is crazy and
4:57
eventually quit DL and J to serve in the Army Reserves but schwartzman's time
5:02
serving his country wouldn't last long he had bigger plans in mind after
5:07
fulfilling the brief military obligation schwarzman motivated by a desire to prove himself decided to go back into
5:14
the frenetic world of Wall Street he applied to Harvard Business School once again only this time he got
5:22
in and after graduating in 1972 schwarzman wasted no time putting his
5:28
education to practical use that very same year he joined Leman Brothers a highly prominent Global
5:34
investment firm where almost all the big shot investors were employed at the time
5:39
but it was at this firm that schwarzman would realize just how competitive the world of Finance could be early on for
5:45
example he wrote a detailed 68-page report complete with appendices and
5:51
footnotes but not long after submitting his work he was stunned by an angry phone call from his Superior Herman KH
5:58
Herman criticized schwarzman for one typo on page 56 before aggressively slamming down the phone and it sort of
6:05
went like this uh this is Herman KH calling is
6:12
this Steve schwarzman needless to say this made it clear there would be no room for mistakes if schwarzman wanted
6:19
to prove himself in the industry so did he give up no way schwarzman once said
6:26
the resilience you exhibit in the face of adversity rather than the adversity itself will be what defines you as a
6:33
person in the next year 1973 his luck started to change when Pete Peterson
6:40
you'll want to remember this name became the CEO of Leman Brothers he was um a
6:45
guy who um is very smart uh Sumi process
6:51
thinking I was uh quicker Peterson would work closely with schwarzman and even
6:57
save him from getting fired just 5 years later the story behind that in 1978 schwarzman
7:04
received a call from Ken Barnaby CEO of Tropicana the company was considering a buyout offer and Barnaby wanted
7:10
schwarzman in Florida the very next day so schwarzman hopped on a plane and met
7:15
with Barnaby at 7:30 a.m. the next morning he quickly learned about beatric food's $488 million offer for Tropicana
7:24
then he had just 1 hour to prepare an analysis of three different payment structures before a big
7:30
meeting in the meeting schwarzman presented his recommendations to five board members including Tropic canis
7:37
founder in the end the board chose a mix of convertible preferred stock and cash
7:42
and schwarzman left for New York feeling like he pulled off the biggest win of his career
7:47
yet however the following Monday schwarzman received an angry call from Peter Solomon leman's Vice chairman
7:55
Solomon claimed that he had been working on a deal to buy Tropicana and threatened to have schwarzman
8:00
fired one anxious schwarzman called up Pete Peterson to explain the situation and ask for help luckily his mentor of
8:08
half a decade saved the day and schwarzman was relieved to learn he wasn't getting the boot from Leman
8:14
Brothers just yet but schwartzman's tenure at Leman Brothers while successful wasn't to last
8:21
forever the arrival of Lou luxman at lhan sparked a power struggle between
8:26
Lou and Pete to avoid a civil War Peterson made the difficult decision to
8:32
leave though this shift in leadership would have drastic consequences for the company you see under gluckman's
8:39
management Leman found itself in trouble the situation became so severe that American Express actually stepped in to
8:46
buy out the firm ironically it was schwarzman himself who helped facilitate this deal with the family of his own to
8:53
consider schwarzman decided it was time to move on from his career at Leman Brothers his departure shirt marked the
9:00
end of an error for both him and the company but it would also Mark A New Beginning for him and his good friend
9:05
Pete [Music]
9:12
Peterson as the curtain fell on schwartzman's Leman brothers act a new and even more ambitious production was
9:19
about to begin it all started in Peterson's East Hampton home where schwarzman and his former Mentor began
9:25
discussing the next chapter have you ever had an idea you just couldn't shake
9:31
well that's exactly what happened it wasn't long before schwarzman and Peterson began fantasizing about
9:36
starting their own firm the duo began holding daily meetings at the Mayfair hotels Courtyard restaurant over coffee
9:44
and strategy sessions they assessed their combined skills experience and reputations the building blocks of what
9:50
would be their future company you see their goal wasn't just to create another investment firm but a
9:57
lasting institution that would stand a test of time unlike lean Brothers what
10:02
we did is we sat around and said okay we're going to start a business let's start something unique naming their
10:09
brainchild was a challenge at first but they ended up going with Blackstone a clever nod to their surnames Schwarz
10:16
meaning black in German and Peter's son translating to Stone in Greek with only
10:23
$400,000 in starting Capital 200,000 each they started Blackstone with a focus on private Equity a field they
10:30
believed held great potential so where did these two first setup shop where else than the financial
10:37
capital of the world that's right Blackstone had its humble beginnings in New York City a modest 3,000 square ft
10:44
in the seum building it wasn't much but it was a start and more importantly it
10:50
was theirs in this new Venture schwarzman took on the role of CEO it was the beginning of what would become
10:56
one of the most significant chapters in his career and indeed in the history of Wall Street in 1985 schwarzman and Peterson
11:04
announced their company's arrival with a full page ad in the New York Times and just like that Blackstone was born a
11:11
financial Juggernaut in the making ready to make waves on Wall Street for decades to come but not so fast the waves
11:19
schwarzman would make weren't immediate instead we could better describe the firm's start as a slow trickle you see
11:27
schwarzman and Peterson soon realized that naming the company was one thing but getting it off the ground was quite
11:34
another they needed money which meant they needed other investors to get excited about Blackstone and invest in
11:40
their dream so how'd they do it well there was no such thing as Twitter or
11:46
social media marketing yet so they had no choice but to do it the oldfashioned way schwarzman and Peterson sent out
11:53
over 400 letters to their contacts introducing their new firm with an enthusiasm of proud parents
12:00
but instead of a flood of business opportunities and investors begging to invest they mostly received polite
12:07
congratulations and the jobs they did manage to land were hardly the stuff of Wall Street Legend the squid Beach Nut
12:14
Company threw them a bone with a $50,000 advisory job Pocket Change in the world of High Finance Armco a steel company
12:22
providing another small gig it was a start but hardly the Roaring takeoff schwarzman and Peterson had envisioned
12:29
undeterred they set up 18 meetings with potential investors surely they thought
12:34
once they got face tof face with these Financial Big Wigs the money would start rolling in and they could get Blackstone
12:40
off the ground but these meetings including one with Delta Airlines mostly
12:45
ended in disappointment it was becoming clear that building a financial Empire wasn't going to be as easy as writing a
12:52
clever company name on letterhead small little companies like this uh were not
12:58
successful in inv banking in fact they didn't exist at all but all that changed
13:03
in 1987 when schwarzman found himself face to face with presedential life's Vice
13:09
chairman their meeting resulted in presential life taking a $100 million
13:14
gamble on Blackstone the moment they'd been waiting for and wouldn't you know it once credential opened its wallet
13:21
everyone else wanted a piece of the action too with blackstone's Newfound clout
13:27
schwarzman was ready to make his grand entrance into the big stage and boy did he pick a doozy for his
13:34
debut blackson's first big investment none other than USX formerly known as us
13:41
steel you see schwarzman was aiming to snag a controlling 51% stake in this
13:47
industrial giant but this wasn't just any old purchase he and his team were plotting a
13:53
leveraged buyout which meant they were planning to use borrowed money from a bank to fin the deal but here's where
13:59
things got tricky schwarzman found himself knocking on Bank door after Bank
14:04
door only to face rejection after rejection unfortunately for schwarzman banks during this time had some serious
14:12
concerned about the steel industry for a moment it seemed like blackstone's luck was finally changing when JP Morgan
14:19
showed interest but their terms were to put it nicely less than
14:24
satisfactory this was too bad schwarzman was desperate for the validation of working with a big Bank like JP he knew
14:31
how much street cred Blackstone could get by collaborating with one of the biggest names in the game but he had
14:37
another financial institution Chemical Bank on the line and while they weren't as big as JP Morgan they were willing to
14:44
provide better terms in full underwriting so the man who'd once been
14:49
rejected a 15c pay raise found himself rejecting one of the wall Street's biggest banks sorry JP Morgan in the end
14:57
Blackstone took chemical Banks money and put up $13.4 million in equity with a
15:03
USX chipping in $125 million in Vendor
15:09
financing it was a Highwire act but schwarzman was ready to put on a show
15:14
and what a show it was within 2 years Blackstone had nearly quadrupled their
15:20
Equity but that was just the opening act by 2003 the total return would grow
15:26
to 26 times their initial investment a jaw-dropping 130% annual return and just like that
15:34
Blackstone had announced their arrival on Wall Street with all the subtlety of a fireworks
15:39
display and from there on schwarzman lived happily ever after just kidding
15:47
you know what they say you've got to kiss a few frogs before you find your prince or in this case lose a few
15:53
million before you make your billions and this would become evident when Blackstone made its third biggest
15:59
investment and its biggest mistake yet with a company called edcom like schwartzman's first deal
16:05
Edgecomb was in the steel business and he was hoping that this buyout would be just as promising but you have to understand one
16:13
good deal doesn't make you a stock market Pro in the early days Blackstone was still finding its footing and like a
16:20
toddler learning to walk the company had lots of enthusiasm but a lot less coordination in fact at this point
16:27
schwarzman barely had had any risk management processes in place a mistake that would end up costing him big time
16:34
you see as the price of steel went down Blackstone took a huge hit on its Edgecomb investment and as you can
16:41
probably imagine the aftermath wasn't pretty in fact schwarzman got a call
16:47
from an angry investor that would haunt him for years to come the tongue lashing he received made his previous call with
16:53
Herman at Leman Brothers looked like a love letter and as this irate investor words
16:59
hit home schwarzman felt his face flush red fighting back tears of frustration and
17:05
embarrassment but from This Bitter experience came a valuable lesson and a sacred vow he swore that he would never
17:12
lose money in this fashion again he even kept a makeshift Tombstone of the failed
17:17
deal on his desk for decades a daily reminder of the costs of complacency but here's the
17:23
million-dollar question or in this case the billion dooll question could schwarzman keep that vow or would the
17:30
Cutthroat world of Wall Street chew him up and spit him out like so many before him it's a big question to answer and
17:37
we'll get there but first let's talk about schwartzman's next steps finding blackstone's bread and butter that's
17:43
right it wasn't until the early '90s that Blackstone started investing in what would become the company's primary
17:49
source of Revenue real estate we own um jeez hundreds of billions of dollars
17:56
of real estate so so what made schwarzman a man with no experience in
18:01
real estate get into buying property well as he once said to be successful
18:07
you have to put yourself in situations and places you have no right being in and given the economic climate in the
18:13
late ' 80s and early '90s schwarzman saw an opportunity to sail Blackstone into new
18:19
Waters you see the US real estate market had just experienced a huge downturn The
18:25
Crisis began when Savings and Loan associations across America caught up in a nationwide building boom overextended
18:31
themselves with risky loans in response to the growing problem the federal government established the resolution
18:37
trust Corporation in 1989 the goal was to liquidate the assets mortgages and
18:43
properties tied to these troubled loans but it didn't work because when the country ended a recession in 1990 the
18:50
value of these newly constructed homes and offices plummeted this put the RTC under intense
18:57
pressure to sell these assets off quickly and at heavily discounted prices
19:03
you see where this is going yet schwarzman realized he could snap up these properties for a bargain and yield
19:09
potentially massive returns in the future acting on this Insight schwarzman partnered with Goldman Sachs to make
19:16
blackstone's very first real estate investment Garden Apartments in Arkansas and East Texas at the time schwarzman
19:23
couldn't have predicted the full impact of this decision but it was a good one as real state would grow to become
19:29
blackstone's largest business segment and since its first property investment
19:34
Blackstone has cast a wide net in the real estate market we're not just talking about a
19:40
few apartments here and there no they've got their hands on everything from Swanky hotels and sprawling Office
19:47
Buildings to hospitals and student housing let's put it this way if it's got four walls in a roof chances are
19:54
Blackstone has invested in it but even while ring high on blackstone's real estate successes
20:01
schwarzman still wasn't content as a new millennium dawned he began setting his sites on the most
20:07
ambitious goal to date taking Blackstone public now what does it mean to take an
20:13
investment firm public this means Blackstone would transform from a private PE firm into a
20:19
publicly traded entity opening its stores to outside investors and expanding its overall
20:25
reach for schwarzman a man who had faced his fair share of rejection this move was fraught with risk going public meant
20:33
inviting the world to scrutinize Blackstone to hold a magnifying glass up to its inner workings and potentially to
20:39
reject it on a grand scale the stakes were higher than even before schwarzman
20:44
and his team poured days into drafting the final prospectus a document that would be blackstone's introduction to
20:50
the world detailing every aspect of the company's operations financials and future
20:56
plans the final dra draft arrived with impeccable dramatic timing just as schwarzman was about to enjoy a night at
21:02
the theater in the Heights was Broadway's latest hit but for Schwartzman the real show was in his
21:08
hands all 221 pages of it as the show started schwarzman began
21:14
reading the prospectus under dim lights but eventually took to the lobby to
21:19
finish after his final read through he thought what a marvelous company I'd buy
21:25
stock in a minute it's the night of the IPO pricing and schwarzman returns back to his empty
21:31
Manhattan apartment he enters relaxation mode after a long day and changes in
21:37
comfortable Ensemble jeans a polar shirt and slippers the king of capital was for a
21:42
moment just a man in need of a quiet evening almost on autopilot and with his
21:48
TV dinner freshly microwaved he flicked on the TV only to find himself face to
21:53
face with himself CNBC was running non-stop coverage of blackstone's IPO too drained
22:00
to change the channel schwarzman sat there listened to experts compare his company to Google wondering if he'd ever
22:07
escaped the madness and as Dawn broke on blackstone's very first public trading
22:13
Day schwarzman made a surprising Choice instead of heading to the stock exchange to ring the opening bell a Wall Street
22:21
tradition he delegated the task to Pete Peterson and Tony James Steven
22:26
schwarzman the man of the hour himself self chose to retreat to the quiet of his office the usually bustling
22:33
Blackstone corridors were empty as he made his way to the conference room in
22:38
solitude schwarzman turned on CNBC watching as the market opened and
22:43
Blackstone began its life as a public company the coverage was relentless interviews he couldn't remember giving
22:50
analysts dissecting every aspect of the IPO now you might be wondering why all
22:56
the fuss well this wasn't just any old IPO we're talking about one of the
23:02
largest and most anticipated public offerings in the US history at the time in its Market debut blackstone's shares
23:09
had jumped an impressive 133% and Steven schwarzman was the name on everyone's
23:15
lips but after an hour of watching it all became too much schwarzman reached for the remote and abruptly shut off the
23:22
TV in the sudden silence the enormity of what he had achieved and what lay ahead
23:28
finally sank in the IPO was no longer a prospect or a plan it was reality and
23:34
schwarzman was at the helm of a new era for Blackstone but what would that new era
23:40
look like well let's rewind a bit and look at the economic landscape leading
23:45
up to the IPO you see Blackstone was stepping onto the public stage just as the curtain was
23:52
about to fall on some of the largest financial institutions in the world in February 2007 Freddy Mack formerly known
24:00
as the federal Home Loan mortgage Corporation sent shock waves through the credit Market when they announced they
24:05
would stop purchasing subprime loans but why well subprime loans were the matches
24:12
that Lit the financial Firestorm these were mortgages handed out to folks with shaky credit people who on paper looked
24:19
more likely to miss payments for years Banks had been packaging these loans into neat little bundles called mortgage
24:26
back Securities and selling them off to unsuspecting investors of course this greed was only creating a housing bubble
24:33
that was bound to burst and as subprime homeowners started predictably defaulting on their loans it marked the
24:40
beginning of America's greatest recession since the Great Depression but the real wakeup call for America came
24:46
when be Stern's hedge funds imploded suddenly it wasn't just Financial insiders who were worried the entire
24:54
country started to realize we were sliding into an economic crisis even the
24:59
big players weren't immune banking giants like JP Morgan Bank of America in city names that had seemed as solid as
25:06
the vaults they guarded were struggling to roll over commercial paper in layman's terms they were finding it hard
25:12
to secure short-term loans to keep their daily operations running smoothly and then came the day that would be etched
25:19
in financial history September 15th 2008 Leman Brothers a 158 year-old
25:26
institution that had survived two world wars and the Great Depression filed for bankruptcy it was like watching a
25:32
financial Titanic sink and it sent shock waves through Wall Street and Beyond so
25:38
how did schwarzman navigate Blackstone through these turbulent times well this wasn't his first rodeo with a real
25:45
estate crisis and schwarzman was well positioned and prepared sitting on $4 billion in cash from the IPO in a 1.5
25:53
billion revolving credit line he was prepared to snatch up assets from distress for a later profit but of
26:00
course despite his preparation Blackstone wasn't entirely immune to the crisis during this stressful time their
26:07
share price plummeted from $31 at IPO to a low of
26:12
$3.55 to make matters worse in the last quarter of 2008 the value of blackstone's Assets in their private
26:19
Equity portfolio was slashed by 20% and their real estate down by a whopping 30
26:26
to make matters even worse JP Morgan slashed their credit line in half yet as
26:32
2008 Drew to a close schwartzman's instincts told him the worst had passed on October 15th while speaking at Munich
26:40
Technical University he was faced with a stark question would we survive
26:46
schwarzman boldly declared the financial crisis over and was met with gratitude and
26:52
Applause but as he left the auditorium the weight of his words hit him in
26:57
sitting in the car to the airport schwarzman felt sick to his stomach he had now said it publicly and he knew
27:04
that he had better be right little did he know schwartzman's preent handling of
27:09
the crisis would Garner attention from more than just other investors in banks in 2012 schwarzman received a phone call
27:17
out of the blue expecting a business partner or perhaps his broker but the voice on the other end of the line tells
27:23
him it's the president confused schwarzman asks the president of what
27:29
and surprise surprise it's not just the president of the local Golf Association it's Barack Obama the president of the
27:35
United States Obama cuts to the Chase and asks for schwartzman's help turns out even
27:42
the leader of the Free World sometimes needs a hand with budget negotiations and who better to call than
27:48
the man who turned 400,000 into an Empire of course schwarzman agreed to
27:54
help he spent the next week communicating with other leaders and the president himself proposing compromises
28:00
about tax increases but schwartzman's Fay into politics wouldn't just end with the
28:07
Obama Administration when Trump took office schwarzman continued to work in the political arena in 2018 alone he
28:14
made eight trips to China becoming a sort of unofficial intermediary in trade negotiations between China and the
28:21
US uh the US keeps changing its views uh the Chinese keep changing their views uh
28:27
you know I I I've been like in the middle of this thing so if you had any question about how powerful you can get
28:34
from running a firm like Blackstone there's your answer a whole
28:44
lot fast forward to today and Blackstone isn't just another actor on the financial stage it's practically the
28:51
star of the show Steven schwarzman the man who started it all has seen his own
28:56
fortunes rise along with the companies his net worth has jumped to over $40
29:01
billion he's gone from Counting pennies in his father's Curtain Shop to Counting billions in his Wall Street
29:09
Empire and even after his longtime partner Pete Peterson stepped down schwarzman has continued to stay at
29:15
blackstone's Helm wearing the hats of chairman CEO and co-founder under schwartzman's
29:21
leadership blackstone's financial performance has been nothing short of remarkable they managed over 1 trillion
29:28
making it the largest alternative asset manager in the entire world and earning schwarzman the nickname the king of
29:35
capital but for schwarzman it isn't all about the money in 2013 he founded the
29:41
schwarzman Scholars Program a move that showcases his commitment to Global Education and Leadership this initiative
29:48
offers a select group of students the opportunity to earn a one-year master's degree in global Affairs at singua
29:54
University in Beijing China every summer schwarzman makes a journey to Beijing to speak as a mentor
30:00
and inspiration to the graduating class of schwarzman Scholars for a man who's seen it all in
30:06
the world of High Finance you might think commencement speeches would be old hat but according to Steven speaking at
30:13
the schwarzman scholars graduation has become one of his favorite annual Traditions it's a reminder of why he
30:19
started this program in the first place to nurture the next generation of global problem
30:25
solvers during his annual address shortsman doesn't focus on balance sheets or investment strategies instead
30:32
he emphasizes a message that served him well throughout his career resilience in
30:37
the face of rejection is what truly defines a person as he presents each deploma and
30:44
Shakes the hands of every graduate who crosses the stage shortsman can't help but wonder what's the next
30:52
ACT but for a man who's overcome unimaginable obstacles he knows the
30:57
answer is both thrilling and simple who knows schwarzman may have built an
31:03
empire in New York City but our next billionaire bought the entire nation
31:09
don't miss our reveal on America's True economic Puppeteer watch now
#Company News
#Economy News
#Stocks & Bonds