JOHN KUKRAL - THE BLACKSTONE GROUP
CEO Interview - published 04/25/2002

DOCUMENT # PAH208

JOHN Z. KUKRAL is a Senior Managing Director of The Blackstone Group and
head of the Real Estate Group. Mr Kukral is based in London, where he
serves as a Managing Director of The Blackstone Group International
Limited and oversees the global real estate activities of the group. He
is also a member of the firm's Executive Committee. Before joining
Blackstone, Mr Kukral was a Principal at the Starwood Capital Group and
Colony Capital, Inc. Mr Kukral graduated from Northwestern University
and received his MBA from Harvard Business School. He is an active
member of the Urban Land Institute and currently serves as the Chairman
of The Savoy Group. 

Sector: lodging

TWST: Would you begin with a brief historical sketch of Blackstone and
then a picture of what the company has been doing lately and is doing
now?

Mr. Kukral: Blackstone has been investing in real estate since 1991,
having invested $29 billion of equity in 110 separate transactions
totaling $133 billion. Over the years we have invested approximately
one-third of our capital in hotels. Blackstone started in the lodging
business in 1991 by combining the franchise systems of Ramada, Howard
Johnson's and Days Inn to create HFS, which is known as Cendant today.
Since that time, we have bought over 200 hotels totaling 35,000 rooms.
We invest across the spectrum of hotels from budget properties to luxury
properties such as The Savoy Group in London. We have been partners with
most of the major hotel operations including Hyatt, Marriott, Accor and
Four Seasons.

TWST: Could you comment on the general health of the hotel industry and
on your own response to the events of 9/11?

Mr. Kukral: The hotel markets had been coming off their peak since July
2000 and 9/11 made what was shaping up to be a down year even more
negative. We responded to 9/11 almost immediately by doing a thorough
review of the financial health of each of our hotels to make certain we
could withstand a prolonged downturn in business. In October we had the
courage to commit to the $750 million purchase of Homestead suites. Our
belief was that if we had a capital structure that could withstand
another potential shock to the system we would eventually do very well.

TWST: Are people beginning to travel again as they had in the past?

Mr. Kukral: Yes, if you look specifically at London, the business travel
is coming back. In April and May, we're hoping to be back at or above
the trend line of a year ago. Don't forget, business travel really
started slowing down in July 2000. So it had dropped a long way prior to
September 11 and is now back to where it was a year ago.

TWST: Could you sketch out some of the elements in your strategic
direction for the next two or three years?

Mr. Kukral: We are continuing to target hotels both in the US and
Europe, across the product spectrum. We're actually fairly bullish on
the industry. Because of the downturn, we will see a reduction in the
supply pipeline across most markets. When business comes back in a year
or two we should see some positive RevPAR gains.

TWST: You mentioned Europe. Any thoughts about Asia?

Mr. Kukral: We haven't really cracked the code in Asia yet. We're still
a small private group. We moved a good portion of our staff over to
Europe two years ago, and I think we still have a couple of years of
getting our arms around the European markets before we spread our wings
farther.

TWST: In what parts of Europe do you expect to be most active?

Mr. Kukral: We will continue to focus on the major urban markets across
all types of hotels and are looking at a number of situations from
third-party managed hotels in secondary markets to small groups of
three- and four-star properties in various countries, in partnership
with great management teams.

TWST: How closely do you involve yourself in the running of the hotels
that you own?

Mr. Kukral: I try to stay out of it completely. Usually when I see
something and I don't like it, it ends up being a good concept. We have
a great group of asset managers and one of the best teams on the luxury
side of the business at Savoy.

TWST: What are the major problems that might arise for you?

Mr. Kukral: Another downturn in the US economy would clearly slow down
business travel again. But I think that hotels, from an operations
viewpoint, should be at a low now and slowly come back. I worry about
supply. There are some markets where there's still new supply already
under construction. You have to watch that you're not buying in these
markets. If you buy well-located properties in supply-constrained
markets, you should be all right.

TWST: What are your feelings about acquisitions, joint ventures, etc.?

Mr. Kukral: With interest rates low and the stock market not that
attractive there has been a shift of capital from around the world into
real estate assets including hotels. Therefore, while the operating
market for the industry is positive, prices are high and there is a lot
of competition to buy good hotel assets. We will continue to look for
value-added situations and, as in the past, we are always interested in
teaming up with strong operators. We have been a partner of most people
in the hotel business ' Marriott to Hyatt to Four Seasons to Accor. So
we're very receptive to them.

TWST: What would be realistically the picture that you'd like to see for
Blackstone three or four years out?

Mr. Kukral: The way that I look at Blackstone is that we're not long-
term owners of assets. We like to buy assets, add value and then sell
them on to long-term owners. Right now, we have about $6 billion of
assets in the US and about $3 billion of assets in Europe. We will grow
our portfolio of real estate in Europe to equal the size of the US.
However, in five to 10 years, we'll have a completely different group of
assets where we can focus our management skills to great value for our
investors.

TWST: Do you have any thoughts about going public?

Mr. Kukral: No. Being public is not for us, although we have taken a
number of companies public. We were partners with Interstate Hotels,
which we took public in 1996. We helped re-structure the DeBartolo
Company, which we took public in 1995. And we were a large investor in
Cadillac Fairview, which we took public in 1997. So in the last five
years, we've probably taken more real estate companies public than just
about anybody. But as far as our own business, we're still privately
owned and we like to keep it that way.

TWST: Is Blackstone fairly lean in terms of the number of people you
have working there?

Mr. Kukral: Oh, yes. We all keep busy.

TWST: Could you tell us about the background of yourself and a couple of
the other key managers at Blackstone?

Mr. Kukral: We have an outstanding group of professionals at Blackstone
Real Estate Advisors. Myself, John Schreiber and Gary Sumers, who runs
our asset management, have all known each other since the early 1980s
and been involved in real estate our entire careers. Most of the
investing is done by a very talented group led by Jon Gray in New York,
Chad Pike in London and Michael Billyard-Leake in Paris.

TWST: What do you focus on most in your busy day? Is there any one thing
that occupies more of your time than others?

Mr. Kukral: I still try to spend the majority of my time doing what I
love to do and what I have done since my first day of work out of
college, get out and see properties. I try and see every property we
buy. I enjoy assessing the markets and the property's ability to compete
in that market. A significant portion of my time is spent with our
investors. I enjoy hearing their thoughts not only on real estate but on
broader investment markets.

TWST: Beyond the things we've already talked about, can you see any
large-scale political, economic or other factors that might be affecting
you over the next few years?

Mr. Kukral: There are a lot of potential obstacles to the economy's
returning to a solid growth path. I have already mentioned the double
dip recession scenario. What's happening in the Middle East, if it
escalates, could have huge ramifications on the economy, on business in
general, and on travel. Demographically, we still have an aging
population in the US and to an even greater extent in many of the
countries of Europe. This will put fiscal strain on countries going
forward. On the positive side, for the lodging industry, I think the
aging baby boom and aging population in general have large amounts of
disposable income to spend and they will be traveling. So we are
positive on the general tourism and travel business going forward.

TWST: Is there any way at all for Blackstone to insulate itself from the
ups and downs of the world economy?

Mr. Kukral: It is hard to insulate yourself because, in general, real
estate does move with the economy. Hotel room nights generally track
GDP. The best insulation is a good capital structure and a great
management team. As long as you have good assets, they will appreciate
over time. For example, with Savoy, as we were buying it, we ran a
scenario of what happened during the Gulf war and made sure that in a
similar circumstance we were able to hold onto the assets. But for the
most part, the assets that were lost in the late 1980s and early 1990s,
if the investors were able to hold on, they would have eventually done
all right. So the key is to have a strong financial position, so that
you don't lose an asset in a potential down cycle.

TWST: Could you give us the three or four best reasons why the long-term
investor should be interested in Blackstone?

Mr. Kukral: I would start with real estate in general. And as I see the
world right now, real estate provides a good relative return compared to
what you're seeing in other markets. You can buy property today without
believing much future growth and get very good returns. My feeling is
that you'll be rewarded down the road when the economy comes back. That
will translate into more travel, rental growth, more RevPAR growth,
which will then increase your return. So I think in general, risk
adjusted real estate is a very good place to invest your money. As for
Blackstone, two things. One is we've been at this for a while and have a
very strong track record of creating value with assets, which I believe
is what you have to do today. You can't just buy an asset and assume it
will be worth more tomorrow. So our method of buying assets, and
creating great value, is the way you have to invest in the future.
Lastly, we've been one of the biggest investors in our fund. From our
associates on up, we put our money where our mouth is and write our
checks right alongside our investors.

TWST: Thank you. (MC)

JOHN Z. KUKRAL
 Senior Managing Director
 The Blackstone Group
 Stirling Square
 5-7 Carlton Gardens
 4th Floor
 London SW1Y 5AD
 UK
 011 44 207 451 4000
 011 44 207 451 4038 - FAX
 www.blackstone.com
 e-mail: info@blackstone.com

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