CFA Conference: Sam Zell

Sam Zell is Chairman of Equity Group Investments, L.L.C. (EGI), a private, entrepreneurial investment firm he founded more than 40 years ago. EGI’s investments span industries and continents, and include interests in real estate, energy, logistics, transportation, media, and health care. He is also co-founder and Chairman of Equity International, a private investment firm that focuses on real estate-related companies outside of the U.S. In addition, Zell maintains substantial interests in, and is the Chairman of, a number of public companies listed on the New York Stock Exchange, including Equity Residential (EQR), the largest apartment REIT; Equity LifeStyle Properties (ELS), a REIT that owns and operates manufactured home communities; Covanta Holding Corp. (CVA), an international leader in converting waste to energy; and Anixter (AXE), a value-add provider of integrated networking and cabling solutions that support business information and network infrastructure requirements. Zell is also the chairman of Tribune Company, a private media conglomerate, where he has been a most controversial figure. His presentation is entitled: Searching the World for Growth: Opportunities in Emerging Markets Real Estate and Infrastructure.  The session was moderated by Debra Cafara of Ventas.

My session notes follow.  As always, these are at-the-time notes.  I make no guaranty as to their accuracy or completeness.

• Through 1980, all business was commercial real estate; today 30% real estate.
• “I am a professional opportunist.  I go left when everyone else goes right.”
• “We’ll look at anything.  I don’t invest in anything that I couldn’t step in and run.”
• “I am the chairman of everything and the CEO of nothing.”
• He sees himself as a visionary and a leader.
• Key: He doesn’t “go do” anything; he stays open to and looks for opportunities, many of which come to him.
• The job is to make 1+1=6 (improve, scale, lower costs).
• Emerging markets — trading growth for the rule of law; need a local partner (the choice of wich is the ost important decision).
• “There is no more basic investment scenario than demand.”
• Getting to investment grade is crucial.
• “Everything is about managing risk.”
• He brings skills and capital to the table.
• He won’t invest in Russia “You don’t know what the rules are or who you’re working with.”
• Middle East (has a housing project in Egypt) — lying low and seeing what happens.
• India — couldn’t find an honest partner; couldn’t understand the economics (in emerging world — everyone sings Kumbaya); everyone went to India and everyone “lost their ass”; but things starting to make sense and became involved about a year ago — it’s a hotel venture, but it’s very early; still significant “trepidation”; easier to run an existing venture than to create one (the emerging markets problem).
• He doesn’t hedge — you can for three months, but not for 10-20 years.
• Always has an exit strategy.
• Interested in Columbia — communications are great (due to the drug trade); 1 million barrels of oil a day; eliminated FARC.
• Europe is great for wine and cheese (“good shit”), but there’s no growth — a demographic cliff and huge entitlement obligations they have no way to pay and no leadership.
• The press uses “austerity” without definition — you can retire in Greece at 45; steps being taken are “relatively minor”; if you don’t allow the market to function, there will be no benefit (rules prohibit growth — “that combination is deadly”).
• Huge over-leverage problem worldwide.
• Growth while deleveraging — focus on your cost side and find where growth can be unleashed (e.g., restrictions on growth).
• Fewest restrictions on growth — Asia.
• U.S. “growth” — Santa Claus based (quantitative easing); huge unemployment (including those “not looking” — about 15% — and especially among the young).
• Seeing regulatory restrictions as a huge U.S. problem. Nobody has ever won in the U.S. touting class warfare, but this time may be different; until now, we have been an aspirational society and an immigrant society.
• “Fairness” is “a bullshit term.”
• Ventas: immigration could solve our demographic problem.
• No longer an illegal immigration problem — no routine flow across the border in one direction (now goes both ways).
• U.S. residential mortgage market — had the government stayed out of the mortgage business, the market would have been cleared out; “Let the market function; let the market decide what should be done.”
• U.S. residential market “constipated” — a whole class of “zombie owners”; leverage precludes growth.
• Lehman run by crisis managers; paid while they are in charge; “miraculously, few assets have been liquidated.”
• Africa — has looked at it a lot; problem is scale (south Sahara); e.g., in South Africa — 40-50 million people, but most at the bottom of the economic scale; Angola might become interesting but afraid of Nigeria; capital markets don’t exist.
• Loves Indonesia — huge population and assets, but cultural and language issues.
• China no longer really focused on attracting capital.
• “Everything we do is predicated upon risk and reward.”
• Re the Tribune — if it had worked, he would have made a ton of money about year 10-11; but revenue hasn’t cut it; it was the right decision at the time, but didn’t pan out.
• In 1988, created Zell Merrill — first real estate opportunity fund; great investment.

Advertisement