66, has been a pioneer in real estate finance, championing the
real estate investment trust (REIT) as the optimum model for
owning real estate in terms of liquidity.
real estate transaction to date was this year�s $23 billion sale to
the Blackstone Group of Equity Office, the office-tower company he
spent three decades building up.
Zell says he
was never driven by accumulation, but rather by achievement. His
favorite adages are: �Unless you�re the lead dog, the scenery never
changes,� and, �Be a risk taker...however, define risk by your own
What about the
future? The following are some of the comments he made last month at
the New York Historical Society, in Manhattan.
Zell said we
were in the �greatest monetization period in the history of the
world.� What does this mean? Think of it this way: if you own an
office building, and go public offering shares on your property, you
have �monetized� the asset.
realized cash, turning a physical thing into a tradable security.
That tradable security is in high demand these days, because people
want that steady income from real estate. And the monetization of
real estate is the process used for meeting that demand. On a global
scale, this trend is only just beginning.
If you examine
the size of publicly traded real estate markets around the world,
compared with the total stock of real estate in each region, you see
that very little real estate trades in the public markets. Europe
has total real estate properties worth some $6.3 trillion, yet has
only a tiny sliver in the public markets�about 2.8%.
European countries only recently enacted U.S.-style real estate
legislation. According to Cohen & Steers, �In Europe, in 2007 alone,
the United Kingdom, Germany and Italy enacted [such] legislation.�
Suddenly, sealed-off private real estate has an open door to public
Cohen & Steer
goes on to note: �The sheer size of German private real estate
holdings, for example, is extraordinary; a significant amount of
these holdings could enter Germany�s public real estate market by
Then there is
Asia. Parts of Asia, such as Japan, Singapore and Hong Kong, have
had U.S.-style real estate laws in effect since 2000. So they are
ahead of Europe. But the opportunity remains large. As you can see,
there is still only a small sliver of real estate holdings in public
hands. Privately held real estate makes up the vast majority.
Zell is bullish
on even North American commercial real estate. He said, �You must
remember that commercial real estate is a global market. For a
euro-based investor, U.S. real estate looks cheap.� As the dollar
tumbles, it puts U.S. assets on sale. (For a U.S.-based investor,
this trend of global monetization of real estate is a great thing.
The more publicly traded global real estate out there, the more ways
you have to hedge yourself against a falling dollar.)
Zell is no
pie-in-the-sky theorist. He is active himself in Brazil, Mexico and
Asia. He owns property and businesses all over the world. He sees
with his own eyes the deals still there for the taking. Recently,
for example, he described picking up a Mexican warehouse only 100
miles from the Texas border that pays a 14% cash yield.
that �steady income from a tangible thing�more now than ever, as
Zell pointed out. And the market will respond. The big trend in real
estate is the conversion of private real estate into public stocks.
Also, rapidly growing economies in Asia and South America push the
demand for all things real estate. They need more of everything�from
retail space to office buildings to warehouses.
So you have
lots to build, lots already out there in private hands and vast
pools of money ready to own real estate. Today we see sovereign
wealth funds�those huge piles of cash in government hands
(especially those of the Persian Gulf states and China).
Zell pointed out that we have �only begun to see the impact of
sovereign wealth funds on world demand [for real estate].� Zell
opined they will be steady buyers, his advice, � buy bricks and