June 7, 2018
He’s seen the REIT sector grow from $7 billion in total market capitalization in 1991 to $1 trillion today. And now, Sam Zell told a packed house at Nareit’s annual REIT Week conference in New York on Wednesday, “We’ve only started to scratch the surface.”
Currently chairman of three REITs himself, as well as Equity Group Investments, Zell has played a key role in making that growth happen, as moderator Steven Wechsler, CEO of Nareit, pointed out. “We’ve turned Nareit into a business,” Zell said, rather than an organization narrowly focused, as it once was, on making sure REITs got the favorable tax treatment. The industry has achieved its scale, he added, in part by creating “a clean environment” that emphasizes transparency in its reporting to shareholders.
And although Zell is now an author with the just-published autobiography “Am I Being Too Subtle?” to his credit, he looked forward rather than backward for much of the 75 minutes he shared the stage with Wechsler.
Asked where the commercial real estate industry is in the current cycle, Zell said, “At the beginning of 2016, I would have told you we were in the eighth inning. Now we’ve gone into extra innings.” Nonetheless, he said he fully expected to see a turn in the business and real estate cycles “in the next 24 to 36 months.”
For one thing, he noted, “Real estate is about to get a huge amount of supply. We’ll see whether the demand is there.”
Balancing supply and demand has been a hallmark of Zell’s business dealings over nearly half a century. For example, he bought up thousands of railcars for 40 cents on the dollar during the 1970s, getting a lock on the national supply of rolling stock on the premise that any competing would-be buyer would then have to pay full price.
“All we needed was for the demand to remain; it didn’t have to grow,” he recalled.
On a more real estate-related note, Zell talked of how Equity Residential (EQR) had some 20,000 apartments in its portfolio in its early days, primarily in the suburbs. A demographic shift beginning in the 1990s found young adults putting off marriage and moving instead to urban CBDs.
Today, EQR’s supply is concentrated in such urban core markets after selling off the suburban product. Figuring out where the opportunities lie in capital allocation is an everyday concern in real estate—and in all other industries Zell has been involved with, he pointed out.
Although Zell takes issue with the #MeToo movement—“more PC being forced on the world”—he has long been recognized for promoting an inclusive environment in his companies, with women filling numerous key executive roles. He told the Nareit audience that such hiring decisions have always been based on merit. “I have never promoted a woman just because she was a woman, and I have never demoted a woman because she was a woman,” he said.
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