Wall Street Manna

An irreverent look at Wall Street

Thursday, February 26, 2009

Blackstone's latest hustle


Tomorrow morning, we'll get an earnings report from Blackstone, and it won't be pretty but they'll put some lipstick on this pig.

And they'll probably throw it on heavy as they talk about Hilton, of which Schwartzman paid $26 billion for at the top of the market.

Maybe Mr. Schwartzman thought he would get a night in Paris, but this buy-out reminds me of an old Eagle's tune:

Welcome to the hotel California
Such a lovely place
Such a lovely face
They livin it up at the hotel California
What a nice surprise, bring your alibis..
Last thing I remember,
I was running for the door
I had to find the passage back
To the place I was before
relax, said the night man,
We are programmed to receive.
You can checkout any time you like,
But you can never leave!

Now Steve can't check out. And he can't get his new hotel in California built! Last year opponents in Beverly Hills had gathered enough signatures to put his new Waldorf-Astoria Beverly Hills plans on the ballot, so Steve had to walk away. Now he couldn't get the money!

Hilton's debt is so worthy, that you, the taxpayer, own $4 billion of it. But you owned it through the Federal Reserve and "Maiden Lane" the SPV on the Fed's balance sheet that took $30 billion of Bear Stearns most toxic assets, from JP Morgan.

Steve will spin the Hilton deal, because it's private, and because they put up $6 billion of equity to get the deal done, and they have plenty of time before they have to refinance their debt.

So to make ends meet, Blackstone is now hustling time shares! And he's giving away freebie vacations to those who sit through the presentation.

So I took Blackstone up on the offer, and stayed 3 days on him, with some tickets to Disney thrown in, as long as I would sit through a two hour Hilton Grand Vacation presentation.

So here's how this hustle works.

What Blackstone is really doing is selling real estate that wouldn't sell, but packaging it in a time share vacation. They'll add up cost of future vacations for the next 30 years, with a 6% inflation kicker to confuse the buyer, and to get an incredible amount that you supposedly would spend on vacations. Then they'll show you how much you can save by paying for your vacations now with an upfront piece of cash for a vacation apartment. And you'll sit through a romantic movie, that will glorify the vacations that you will take while staying at Hilton.
Hilton wants to sell you it's real estate that nobody wants, so they package it as a time share, and the time share piece that you buy, gives you points to stay at Hilton hotels or vacation apartments, for the rest of your life, or until Hilton goes into bankruptcy, whichever comes first!

These "points" let you stay at these vacation destinations, and these vary by the amount you put down to buy the weekly ownership that you acquire in the apartment.

The points you receive, depend on the amount of money you are spending for your timeshare. Of course, these time shares are called Vacation clubs, because no one wants to acknowledge that they are buying real estate. But here's the math on the hustle.

You can buy one week in a one bedroom "vacation" apartment for $20,000. What you are actually doing though, is buying the apartment, for one week. Thus there are 51 other weeks of buyers. So 52 weeks times $20,000 means you are paying $1,040,000 for an apartment that wouldn't sell for more than $160,000. This apartment will also cost you $700 in maintenance and $300 in taxes for the year. And you have it for one week. So Hilton is getting $36,000 in maintenance and $15,000 in taxes for the $160,000 apartment, that they sell for $1,040,000. Why do you think the taxes are where they are?

What you get for buying this over-priced real estate is a Hilton vacation that allows you to stay in another of the "vacation" apartments, or use their hotels, or to use the unit that you bought, for one week, for the rest of your life, or until Hilton goes bankrupt, whichever comes first! (I know I am repeating myself, but it's like the chicken roaster --"Just set it, and forget it!")

Now Hilton would like you to pay this amount of money up front, but if you are inclined to finance it, they'll let you in for a small fee and charge you 16.9% interest irrespective of your credit. Just make some payments! And do it today! Because you can't walk out of there with any paperwork or any details unless you sign on the bottom line and give a check.

Now you may wonder why they give you a free three day vacation. That's because you get three days to change your mind on these contracts. So they hit you up on the first day of your vacation. They want to make sure the deals stay done!

So tomorrow morning, we'll hear from Steve why the Hilton deal was so worthwhile, and that they'll make things work.

And he'll sound just like a stuck time-share owner!

Listening to the Eagles!

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