Billionaire speaks to students about prime investments

Billionaire speaks to students about prime investments


By KEVIN COLEMAN of the Tribune’s staff
Published Saturday, April 28, 2007
Clad in jeans, a brightly striped open collar shirt and a blue suede sport jacket, 65-year-old Sam Zell looked more like an aging poet or former hippie than one of world’s most successful investors.




Zell
Zell, keynote speaker yesterday at the second annual forum of the Jeffrey E. Smith Institute of Real Estate at the University of Missouri-Columbia College of Business, told a full house in Bush Auditorium that a surge of cash has fueled an unprecedented rise in real estate values.

"This is an extraordinary period for real estate, a golden age, a sweet spot," he said.

Known as the "The Grave Dancer" for his knack of finding undervalued and overlooked distressed properties for investment, Zell started off managing apartment buildings as a student at the University of Michigan. He founded Equity Group Investments LLC and has ownership interests in several companies listed on the New York Stock Exchange. One of those companies, Equity Office Properties Trust, was recently sold to The Blackstone Group for $39 billion.

And early this month, Zell made the national spotlight when he launched a $8.2 billion takeover of Chicago-based Tribune Co, owner of the Chicago Cubs and publisher of the Chicago Tribune, Los Angeles Times and Baltimore Sun. He plans to invest up to $500 million and take the company private using loans and an Employee Stock Ownership Plan for the 21,000 employees.

Zell said yesterday that real estate values have swelled from the greatest period of "monetization" ever that began with a federal law that created real estate investment trusts, or REITs, in the early 1960s. The full power of that legislation wasn’t unleashed until about 40 years later, he said.

"We’ve achieved the goal of creating liquid real estate, which has been the goal since the beginning of time," he said.

Zell said investment cash from publicly traded REIT’s, pension plans and other sources that are accountable for predictable profits to investors have opened the flood gates of capital for real estate. But he cautioned that "there really are limits" to rising real estate values and said that he keeps an eye on unrealistic prices by using replacement cost as a benchmark.

"That’s the only metric that’s ever worked for me," he said.

John Keller, commercial lending officer at The Bank of Missouri, was on hand for yesterday’s real estate program. He said Zell’s viewpoint about real estate values gave him ideas to mull.

"The real estate market is good, and it has been good for some time; it’s really been a robust market," Keller said. "But in the back of your mind, with all this liquidity on a global level, the question is: Will that continue? Get out your crystal ball. I wish I knew the answer."

During a question-and-answer session, Zell said he has shunned Europe for investments and instead has focused on emerging countries such as Mexico, Brazil, Egypt and China.

And when asked what he thinks about the Chicago Cubs, Zell said: "Sell short."

Local accountant Russ Starr of Williams Keepers also was on hand for yesterday’s program to get the latest on real estate investments and strategies. He said Zell was impressive.

"He’s obviously is a fascinating guy," Starr said. "It was interesting that he was introduced as someone with an uncanny ability to see around the corner. He has anticipated changes that are coming and learned how to modify his business plan to accommodate that."

Zell of Chicago has undergraduate and law degrees from the University of Michigan. He’s an avid skier and a motorcycle enthusiast along with a pack of friends known as Zell’s Angels who ride on every continent. Forbes Magazine estimated Zell’s fortune at $4.5 billion and ranked him as the 52nd-richest American.

Local real estate developer and MU graduate Jeff Smith last year donated $3 million over a 20-year period to fund the Jeffrey E. Smith Institute of Real Estate at the college and start a degree program in real estate. The speech, part of a daylong real estate forum, was free to faculty and students but cost others $250 per person.