He hasn’t leapfrogged straight into the top twenty, but Jurys Inn owner John Grayken has made his debut as a billionaire on the Forbes rich list for the first time this year. The private equity fund manager arrives on the Forbes billionaires list with the second-biggest fortune in private equity, €5.8 billion.

In a period that demonises predatory banking, Grayken is seen in the United States and elsewhere as a ruthless operator but yet virtually every pension fund manager in the world is just begging to give him their money.

Grayken became an Irish citizen in 1999, not for love but for money. To him, renouncing US citizenship was a way to avoid Uncle Sam’s tax take, and he spends most of his time at his €65m London residence at Boltons Place.

Wherever recession strikes, it’s a safe bet that Grayken will appear shortly thereafter, picking through the rubble for distressed assets with his private equity group, Lone Star. The enigmatic billionaire founded his Texas-based venture in 1995, and has since organised 16 funds that have raised capital of around €60 billion for investment in America and elsewhere.

Amaris Hospitality

Last year, Lone Star launched a new hotel investment and hospitality group, headquartered in Dublin and focused on Ireland and the UK. Amaris Hospitality comprises a portfolio of some of the hotel assets picked up by Lone Star over the last two years, including the Jurys Inn group. In all there are 89 hotels, 15,000 rooms and 8,000 employees bundled into Amaris. Other brands in Amaris Hospitality’s cache include Accor and Hilton.

In Association with

Grayken committed €140m to Amaris Hospitality to cover the refurbishment and rebranding of the group’s portfolio, and he has assembled a team of top hotel executives, mostly from Jurys Inn. John Brennan, formerly CEO of Jurys Inn, now heads Amaris, while Grant Hearn, former CEO of Travelodge, is non-executive chairman.

Amaris’s trajectory will include the expansion of the Jurys Inn brand name to other hotels in the portfolio. When the refurbishment and rebranding of its hotels is complete, Lone Star will offload the hotel chain. According to Grant Hearn, the expectation is that Amaris will have a value of some €3 billion by that point.

The plan for Amaris chimes with Lone Star’s usual modus operandi. The group takes on property-related loans from banks, as well as other distressed assets and properties, during and after economic crises, then flips them for profit at an opportune time.

With Grayken calling the shots, Lone Star began acquiring debts in the Canadian market in the mid-90s. The group also mopped up distressed assets in east Asia following the property market collapse in Japan in the early 90s, and after the broader financial crises in the east Asia region a few years later.

Grayken accelerated Lone Star’s activity in Europe as the 2008 recession took hold, while also increasing the purchase of assets in the US from 2007. His strategy has been almost uniformly successful, with Lone Star claiming annualised returns of 20% for investors since it was founded.

Over the years, Lone Star acquired billions of euros worth of mortgage-linked investments held by Merrill Lynch, as well as loan portfolios from Commerzbank in Germany, partnering with Wells Fargo and JP Morgan to clinch sizeable real estate portfolios in the UK and Spain.

It also bought a controlling interest in Korea Exchange Bank and has provided loans to Sony to help fund some of its blockbusters.

Price Manipulation

But the €1.8 billion KEB acquisition led to a few speedbumps for Grayken when he tried to sell his stake for over €4.6 billion just four years later. Legal and regulatory investigations led to the sale being blocked, Lone Star’s man in Korea, Paul Yoo, was convicted of manipulating the stock of the credit card unit and sentenced to three years in jail, and a Lone Star junior employee in Korea was caught embezzling more than €10m from the private equity firm.

Remarkably, Grayken persevered in Korea and finally sold his KEB ownership to Hana Financial in 2012 for a €3.7 billion profit. This wasn’t enough, of course, and Grayken is in arbitration to recover billions more in profits he believes he would have made from the original deal.

He’s in low regard in his former homeland, too. Last September the New York Times reported that many of the delinquent mortgages Loan Star bought have ended in aggressive repossessions. Its editorial board went on to accuse Lone Star of relying on the “foreclosure and re-sale of homes to make money”. New York Attorney General Eric Schneiderman reportedly opened an investigation. Lone Star and Caliber, its Texas mortgages offshoot, refused comment.

Lone Star’s funds have been busy buying in Ireland too, investing more than anyone else in the country’s post-crash property market. Grayken oversaw Lone Star’s acquisition of a chunk of Anglo Irish Bank’s loan book from the IBRC liquidator, as well as a portfolio of property loans from AIB. Lone Star acquired Jurys Inn’s chain of 31 hotels for a reported €900m after the deal was approved by the Competition and Consumer Protection Commission in 2015.

And his latest Lone Star fund now has €4.6 billion aimed at property in Europe, where banks are still offloading loans and property. Grayken has personally invested $250 million in the fund, his 16th, adding to the $1.3 billion he already has in Lone Star’s funds.

'Distressed' Loans

John Grayken grew up in Boston and worked with Morgan Stanley after graduating from Harvard Business School. His career ratcheted up when he met Robert Bass, a Texas billionaire. Grayken was put in charge of Brazos Partners, which had been established by Bass and the US government-run Resolution Trust Corporation in 1993 to acquire distressed mortgages and loans.

Grayken subsequently went on to found Lone Star, with Brazos Advisors, now renamed Hudson Advisors, providing asset management and other support services for Lone Star’s asset and debt purchases. Lone Star’s latest fund, ‘Lone Star Real Estate Fund IV’, closed in April 2015 with €5 billion in capital commitments. With this, Lone Star has been targeting commercial real estate debt and equity products in the Americas, Europe and Japan.

Lone Star’s plans for Jurys Inn group is the latest chapter in the hotel chain’s drama-rich story. The chain was launched in 1993 and opened a string of hotels around Ireland and the UK over the next two decades. Jurys Doyle hotel group sold Jurys Inn for over €1bn in 2007 to a group of investors led by Derek Quinlan, who in turn sold half of the equity to Oman Investment Fund.

Although the underlying business was solid, the debt was unsustainable. Jurys Inn had lengthy financial restructuring discussions in 2013 with the IBRC, AIB and Ulster Bank over its onerous debts, with CEO John Brennan securing a sizeable write-down.

Profit On The Buy

Now controlled by Grayken, Amaris won’t stay that way for long. The rich list member believes in ‘flipping’ his acquisitions in the short term and driving his equity fund’s returns by rapidly extracting value.  “We do our profit on the buy.” is how Lone Star’s president, Andre Collin, described the strategy just last month. “We do some of the value-add stuff from time to time if it’s there and part of the plan, but if I have an opportunity to sell and I get a good price for my investor, I sell.”

So the Grayken, an Irish citizen for tax reasons, won’t be holding onto his Irish-based asset for any lengthy period — just for as long as it takes to net a hefty profit on the sale.