Sam Zell talks “jungle” entrepreneurs, “dearth” of mergers

The “jungle” entrepreneurs of real estate are a dying breed, according to billionaire Sam Zell.

Zell, chairman of Chicago-based Equity International Group, said on Wednesday that the industry has gone from a “very jungle entrepreneurial environment” to an “institutionally driven” one over the past three decades. These days, fewer investors are playing with their own capital, he noted.

“I don’t see that reversing itself,” he said during New York University’s annual REIT Symposium. He said he counted himself and a few others, including, former Boston Properties’ CEO Mortimer Zuckerman, among the remaining “entrepreneurial” crowd. “We’ll be a nice footnote,” he quipped.

When asked by the moderator, Adam Emmerich, a partner at Wachtell, Lipton, Rosen & Katz, if he thinks recent merger and acquisition activity among real estate investment trusts is part of a larger trend, Zell said such deals are just the product of the market “catching up.” He thinks there will instead be a “dearth” of mergers in the near future.

Zell pointed to the fact that the public real estate investment trust market has increasingly “demanded low leverage” and “isn’t interested in taking risk.” He noted that capital is always available to big, liquid companies like Simon Property Group. He pointed to the fact that Simon issued equity and debt in 2009 to raise capital in the middle of the financial crisis. He said that success of that move proved that real estate could be treated like other industries.

“It’s only a question of price whereas, in the old days, there would be no available capital for real estate overnight,” he said. He compared this concept to a story about Winston Churchill, in which the former British Prime Minister haggles with a sex worker over price.

From left: Sam Zell, chairman, Equity Group Investments and Adam Emmerich, partner, Wachtell, Lipton, Rosen & Katz (Credit: Mark McQueen/NYUSPS)

“You know what you are; it’s only a question of price,” Zell said, somewhat misquoting the anecdote.

Zell’s gotten into some hot water in the past for making off-color, and in some cases offensive, remarks in public. Last year, while speaking about gender diversity at a REIT event, Zell said he promotes women based on merit and added: “I don’t think there’s ever been a, ‘We gotta get more pussy on the block, OK?’” At a subsequent event, he remarked, “Argentina is like a beautiful woman — her greatest asset is a man’s imagination.”

When asked where he’s looking to invest next, Zell wouldn’t specify emerging markets that his company is eying. He said in the absence of “rule of law” in different countries, investors in are instead vulnerable to the “rule of the jungle.”

“If you own forever in emerging markets, you end up broke,” he said. “When you get outside of the U.S. or Europe, it’s not so much where you jump to as it is where you are pushed to.”

He noted that some 3 million people have fled Venezuela amid economic and political crisis in the country.

“That’s really scary, because that could destabilize all of Latin America,” he said. (Last year, EIG and Goldman Sachs reportedly announced that they would invest more than $300 million in Argentine real estate).

He also needled Barry Sternlicht, chairman and CEO of Starwood Capital Group, who spoke at an earlier panel at the NYU event, for touting Berlin as an attractive place to invest. Zell cited a Wall Street Journal article published on Tuesday, which detailed a plan to expropriate all private, profit-seeking landlords who own more than 3,000 apartments.

“Maybe Barry didn’t read this morning,” Zell said.