Party central

Last month, Steve Schwarzman, the co-founder of The Blackstone Group, hosted two lavish parties on the Upper East Side of Manhattan. The first event, his 60th birthday fete, received more than its fair share of press coverage. The gossip column of The New York Post wrote that the party hall was decorated to look like Schwarzman's palatial living room, while papers as far-flung as The Hindustan Times and The New Zealand Herald weighed in on the evening's entertainment: the singer Rod Stewart, at a cost of $1 million.

The second party was far less celebrated—and for good reason. The media was asked not to report on it. Exactly one week after Schwarzman's birthday bash, Blackstone hosted a gathering of journalists for an off-the-record evening of cocktails and dinner. And though most of the details will be left to the imagination, just an FYI: the tarragon-crusted lobster was delicious.

Although both parties differed in substance and style—the journalists, for example, were not treated to any serenades—each one demonstrated the rising public profile of private equity. Yes, LBO titans have always thrown expensive soirees, but rarely have they been covered in newspapers in India and Australasia. And it used to be just Washington insiders and Hollywood celebrities that courted the press. Now private equity firms—the new celebrity class of the financial world—are getting in on a game they once so assiduously avoided.

Playing the game, however, doesn't necessarily result in favorable coverage. Schwarzman's birthday extravaganza was widely criticized, both for its conspicuous consumption and its potentially chilling effect on the private equity industry. Public shareholders and labor unions, the argument goes, are becoming increasingly unhappy with the growing influence of private equity in the public sphere and the more ostentatious the behavior of private equity barons become, the more difficult their next takeover will be. Shareholders won't agree to sell so easily, critics note, if they see how much money Schwarzman and his cohorts can wring out of their companies.

Overlooked in all of this criticism, of course, is how much work it actually takes to wring out that money. While Schwarzman and his friends were listening to Stewart belt out Forever Young, a cadre of Blackstone pros was busy burning the midnight oil selling off EOP assets. As reports in The New York Times and Bloomberg have noted, not only did Jon Gray, the head of Blackstone's real estate group, miss attending the Super Bowl to work on the deal, he also eschewed the traditional post-acquisition party—instead, Gray and his wife celebrated with a quick glass of champagne at Blackstone's Park Avenue offices. Like cats, Blackstone professionals view the passage of time differently than others—they often speak of “Blackstone years.”

Blackstone has moved with stunningly quick speed to sell off a significant portion of the EOP properties— at press time, the firm had either sold or agreed to sell almost $18 billion worth of assets, nearly half the price paid for the company. While there is still speculation over the private equity firm's ultimate exit route, one source says that Blackstone may sell off the entire EOP portfolio over a period of approximately 12 months. A spokesman for Blackstone, however, denies that is the firm's plan.

At any rate, the source notes that Blackstone could generate profits of approximately $2 billion if it moved that quickly. Given their equity check of just under $4 billion, such a deal, if successful, would ultimately represent an IRR of 50 percent. It may not be a spectacular cash-on-cash multiple, particularly after Blackstone had to up its bid by $3 billion, but it nevertheless represents a lot of money.

“A couple billion is a couple billion,” notes the source. “That's not chicken feed. I don't care who you are.”

The EOP deal closed four days before Schwarzman's birthday gala. That coincidence provided plenty of fodder for the media to suggest that the private equity bacchanalia of the past few years may be at its peak. $39 billion for a company. $3 million for a party. Surely, it cannot go up from here.

But surely, it can. Almost every industry practitioner I have spoken to still believes Blackstone made a great deal despite the price it was eventually forced to pay after Vornado entered the ring.

“It would have been a grand slam deal,” notes the same source. “Now, it's still a home run.”