The Real Deal New York

Zell Calls for Global REITs

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October 12, 2007
By Lois Weiss

Billionaire investor Sam Zell told an international real estate group recently that the future of liquidity in real estate investment trusts was in a global standard.

“We are the last of the capital intensive companies that are not an oligopoly,” Zell said of real estate in a keynote speech at a Houston, Texas gathering in late May. “We need a rule of law and consistent world standards.”

A legal standard would create large, multinational real estate investment trusts, he explained, and give investors opportunities to invest in multiple markets with one company.

Zell is chairman and founder of the largest REIT, Equity Office Properties-one of three REITs traded on the New York Stock Exchange – that owns more than 124 million square feet, and Equity Residential Properties, which owns 210 apartment buildings with 192,000 units.

He typically makes speeches in jeans, but wore a dark suit to likely ensure the members of FIABCI, the International Real Estate Federation, and the National Association of Real Estate Editors joint session would take his message seriously.

Japan, Australia, Singapore, France, Argentina, Mexico and the United Kingdom have so-called REIT legislation pending or in place to allow properties to be publicly traded. But Zell complained the few countries that allow REITs mostly regulate through outside governance. This had proved disastrous for U.S. REITs from 1960 to 1992 as the goals of the outsiders and companies were not aligned, Zell said.

When U.S. laws changed and instant information was available through technology, the new “transparency” allowed the market value of REITs to shoot from $6 billion to $310 billion today.

Zell also claims the net asset value or NAV standard is “outmoded” and does not credit the economies of scale, efficiencies of management or fast financing that can be accomplished by large REITs.

“The future is not the collection of individual assets but an integrated platform that can deliver its services in an efficient manner,” Zell concluded.

“We are very much on the doorstep of a brave new world.”

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