Billionaire investor Sam Zell’s tip for real estate newbies? “Go to medical school”; Equity Residential chief shares wisdom at NYU REIT conference

Sam Zell’s tip for real estate newbies? “Go to medical school”

Equity Residential chief shares wisdom at NYU REIT conference

April 12, 2013 06:00PM
By Hiten Samtani

Had Equity Residential’s Samuel Zell known that Lehman Brothers would accept a fixed price for Archstone’s sprawling apartment building portfolio, he would have bought the whole company outright, he told participants yesterday at a real estate investment trust symposium hosted by New York University’s Schack Institute of Real Estate. “The fixed price removes a lot of uncertainty from the deal,” said Zell, looking rakish in a grey blazer and jeans, amidst a suit-clad crowd at the Pierre, a swank Central Park-facing hotel at 2 East 61st Street.  In November of last year, Zell and AvalonBay Communities, a Washington, D.C.-based REIT, agreed to pay roughly $6.5 billion in cash and stock for the portfolio, which contained just under 58,000 apartment units scattered around the Northeast. Zell said he wasn’t aware that Lehman would agree to a fixed price — rather than a fair market value deal — and if he had known that up front, he would have gone solo. Still, AvalonBay was a stellar partner on the deal, Zell said. “To do a deal of that size with such limited friction is pretty extraordinary,” he said. In New York City, Equity Residential is building 400 Park Avenue South, a 40-story condominium and rental apartment tower in partnership with Toll Brothers. But ground-up development — given its inherent risk — is only a small part of the publicly traded company’s arsenal, Zell said, noting that the firm built only “5 percent” of its portfolio, valued at $35 billion.

“We’re going to find out in the next three or four years what happens when you’re in the middle of construction and inflation starts to go up,” he said. When asked about the housing market, Zell said that elevated home ownership rates had historically preceded turmoil. “Every time we’ve got into a crisis in this country, the housing rate has hovered over 62 percent,” he said. “It was 69 percent recently, now it’s at 65.5 percent.”But, he added, the rates would eventually reside in the “50-something” range as people opted for a different lifestyle.

“Millenials have destroyed the shibboleth that housing [rates] only goes up,” he said.

Zell was the final speaker at the conference, which included a roster of industry bigwigs.Michael Fascitelli, outgoing chief executive officer of Vornado Realty Trust, spoke in a morning panel about doing deals in uncertain markets; Michael Graziano, global co-head of real estate at Goldman Sachs discussed the intricacies of financing REIT deals; Pershing Square Capital CEO William Ackman and Jonathan Gray of Blackstone talked about REIT conversions, foreclosures and the rise of single-family home REITs; and AvalonBay CEO Timothy Naughton shared tips about hot investment sectors and foreign expansion.

The conference was rife with zingers, with Ackman and Zell in especially fine form.

“Go to medical school,” Zell quipped, when a student asked for advice for budding real estate players.

“Most people don’t wash their rental cars,” Ackman said, when he was asked about the risks of a single-family rental portfolio, implying that maintenance was a challenge with single-family rental homes.

But Zell, in one of the final questions of the day, took the cake. When asked how he was preparing for the eventual unwinding of quantitative easing — the Federal Reserve’s policy of buying financial assets to lower interest rates — he said, only half in jest: “I’m getting under my bed. I suggest you do the same.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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