Features

Sam Zell Interview

Chairman, Equity Office Properties, Equity Residential Properties Trust and Manufactured Home Communities Inc.

The rogue investor who built his $1.6 billion fortune — and three public companies — on the back of the real estate booms and busts of this millennium says the heyday of the vulture is all but over. With real estate investment trusts controlling 30% of what Mr. Zell, 57, calls “the real commercial stuff” — a percentage he says that will continue to climb — Wall Street now has the capacity to “cut oversupply off at the knees.”

“The opportunities of the next millennium lie in capitalizing on the already assembled loot — and the new status of real estate as a respectable place to do business. Obviously, the scavenger opportunities of the past were a function of an industry that had great cyclicality. One of the things that emanates from having the market in public hands (in Reits) is it will reduce volatility by bringing a lot more transparency to an industry that’s been historically opaque.

“The opportunities will be in trying to intelligently figure out how to use what we’ve assembled. The focus will move toward operating efficiencies and leveraging what we have — more service-oriented businesses, much more effort toward branding.

“I’m very optimistic. I believe this whole thing is about the conversion of real estate from being outside the mainstream of business to being inside: Competing for capital with other industries, competing for efficiencies. The principles of Jack Welch, chairman of General Electric Co., never applied to real estate in the past. Now they do.

“Commercial real estate represents 12.5% of gross domestic product. Fifteen years from now it will be 5% or 6%, as we move away from hard assets to soft assets. Real estate will be less of a factor. That’s preordained. Whether it’s more profitable — that’s a different question.

“I don’t think people understand yet the role of the building and the landlord in the distribution of soft assets, such as telecom capability. That will be a big part of the landlord business 20 years from now.

“As for the past. . .I suppose I’d like to be remembered as fiercely independent in my views and the actions I took, comfortable as a contrarian, and lucky enough to be around in 1991 and 1992 when dealing with real estate was like taking a paint brush to a blank canvas.”