He Built A Hotel Chain. Now He Has To Run It

Just two years after joining Blackstone Group to run its $850 million buyout fund, Henry Silverman is leaving the Wall Street investment boutique. Come January, say several knowledgeable sources, he'll give up his Blackstone partnership to serve as chief executive of Hospitality Franchise Systems--a hotel group Silverman put together with Blackstone money in 1990.

Blackstone, run by founding partners Peter Peterson and Stephen Schwarzman, is said by many on Wall Street to have a revolving door. But Silverman's move is probably driven by unique circumstances: Blackstone's planned purchase of bankrupt Days Inns Inc., for which it recently bid $250 million. If the purchase goes through, Days Inns will join the Ramada and Howard Johnson hotel chains under the Hospitality Franchise Systems umbrella to form the world's second-largest hotel franchise group (chart). With such a large property, Blackstone needs Silverman to run the hotels full-time.

Silverman has had plenty of experience with hotels--particularly Days Inns. While running Saul Steinberg's Reliance Capital Group Inc. during the 1980s, Silverman bought and sold the chain several times. This time, his job will be to integrate Days Inns into Hospitality and ultimately sell the hotels at a profit for the Blackstone fund's investors. That'll be a stiff challenge. In light of the current hotel slump, some think Blackstone overpaid when it bought Ramada and Howard Johnson for $200 million in 1990. One former Blackstone executive likens Silverman's new position to "cooking in his own soup." Of course, there's a heavy incentive for Silverman, too. He'll get options to purchase a chunk of equity in Hospitality. Assuming Blackstone later succeeds in taking Hospitality public or selling it, Silverman could reap a hefty profit for his portion. Neither Silverman nor Schwarzman, Blackstone's CEO, would comment for this article.

COMPLEX TIES. The plan represents a major change. Silverman has held the CEO title at Hospitality since he created the hotel group, but until now, he had spent only Mondays working out of Hospitality's offices. The bulk of his time was devoted to scouting out new investment opportunities for the $450 million remaining in Blackstone's fund. It's not clear who will manage the fund now. Nor is it certain what effect his departure will have on Blackstone's pending joint bid with Time Warner Inc. for Six Flags Corp. The deal involves a complex arrangement--designed largely by Silverman--whereby Time Warner has options to buy Blackstone's stake later.

Silverman has been known to clash with Schwarzman. But whether that influenced his departure is also unclear. This summer, Silverman described his relationship with Peterson--a former Commerce Secretary--and Schwarzman this way: "I tell them what I'm doing--they're not directly involved."

Why is Blackstone known for its revolving door? Several former Blackstone employees claim Schwarzman and Peterson have created an environment that produces frequent defections--mainly in the middle ranks. But partners have left, too. Former Metropolitan Transit Authority Chairman Richard Ravitch became a general partner in 1990, only to resign quietly in 1991. General partner Steven Winigrad left in December, 1990, after 21 months. Says one former employee: "When Henry joined, I thought, boy, he has really sublimated his ego--because Steve and Pete really make you feel like hired help. For Henry in particular, that had to chafe."

Chafed or not, Silverman will still be closely tied to Blackstone by the hotel venture. And everybody involved must agree that making that work--no matter how bad the economy is--has to be the No. 1 priority.

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