Billionaire Sam Zell Talks Trump, SPACs, And Interest Rates In Forb... https://www.forbes.com/sites/christopherhelman/2020/11/17/billionaire...

Billionaire Sam Zell Talks Trump, SPACs,

And Interest Rates In Forbes Q+A

Christopher Helman

Zell in 2019.
Getty Images

Sam Zell is one of the legendary investors of his generation, known for his love
of dealmaking, gold chains, and telling it like it is. The title of his 2017
autobiography borrows his favorite phrase: “Am I Being Too Subtle?” Real estate
has long been Zell’s dominion, and he scored a giant win in 2007 with the sale of
the REIT he built, Equity Office Properties, for $39 billion, at the top of the
market. Less successful, his $8.2 billion LBO of newspaper conglomerate
Tribune Co.— which went bankrupt a year later.

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Zell, 79, has a large capacity for spinning many plates in the air simultaneously,
and because he enjoys operating in the public markets, you can invest right
alongside him. He’s even added to the mix: in early November his new blank
check company, Equity Distribution Acquisition Corp. (EQD) raised $400
million. Zell’s net worth, estimated by Forbes at $4.7 billion, is largely tied up in
Equity Residential (EQR, down 30% year-over-year); manufactured home leader
Equity Lifestyle Properties (ELS, -10%); Equity Commonwealth (EQC, -20%), a
commercial REIT; and oil refiner Par Pacific Holdings (PARR, -50%).

Zell sat for this Q&A over Zoom in early November on the occasion of the
Forbes/SHOOK Wealth Management Virtual Summit, to share his thoughts on
President-elect Biden, the likelihood of sub-zero Treasury rates, and, of course,
the SPAC wave.

(The following has been edited for clarity.)

Chris Helman: The election was last week and markets seem to like the prospect
of a President Biden. Would you please share your initial thoughts on the
changing of the political tide?

Sam Zell: I don’t think this is going to be as radical a change as some of the
savants are suggesting. The election was not a blue wave, and I assume the
Republicans will keep control of the senate. So I don’t see any radical change in
policy. All of the stuff that was discussed during the Democratic primaries will go
back to the left where it belongs. And I think Joe Biden is likely to run, for sure a
left-of-center, but a center administration. I think Donald Trump did the
country a great favor. He didn’t drain the swamp but he certainly
upset the swamp, and I think the net result of all that is going to be very
positive for maintaining a centralized country.

CH: So capitalists need not fear? There’s no need to sell everything in advance of
increasing capital gains taxes, for example? You’re not planning for that?

Zell: Assuming Georgia seats at least one Republican senator which is highly
likely, I think that the kind of radical tax policy and radical climate policy
and radical energy policy are not going to be terribly relevant going
forward, and I think that is a very strong plus for the U.S. economy.

CH: Interest rates are historically low. Which obviously helps the valuations of
your real estate. Any chance we will see zero or below on the 10-year Treasury?

Zell: I don’t think so. The challenge of the next few years is to keep interest rates
as low as possible. I think the risks of inflation are much higher than the
risks of deflation. Rates have to stay low because we can’t afford to pay back
in a higher rate than we’re dealing with today. This slows the whole economy. I
read in Grant’s Interest Rate Observer an analogy that zero interest rates are like
basketball before there was a shot clock. Very low interest rates result in
deferral of decision making.

CH: When money’s that cheap, you get zombie companies.

Zell: It’s unusual when you’re deciding what to do — whether to make an

investment or not — and all of a sudden taking an extra three months to make
your decision has no cost.

CH: Does this play into the SPAC craze? Special purpose acquisition companies
have raised tens of billions this year in equity financing, perhaps in part because
investors don’t like the alternative, which is to invest in low yielding debt?

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Zell: Some of these issues influence the SPAC wave — which is one of the few
things I’ve ever seen where Wall Street created a product that is beneficial for the
investor.

CH: Ok…

Zell: You can buy a SPAC today and the only risk you’re taking is the
opportunity cost of having that money put away for two years and you can’t get
it. And you could sell your stock. You have a choice. Say yes, say no, take your
money back. It’s a fabulous deal for an investor. It establishes public capital and
takes one of the unknowns out of the transaction. And I think we’re in an
environment right now where there’s a lot of companies — like family companies
or inside of private equity firms — that want to find a public company exit. The
number of public companies has dropped dramatically over the last 10 years as
we’ve taken all these companies private.

CH: The landscape must be like a smorgasbord for you. What are you going to
purchase via Equity Distribution Acquisition Corp.?

Zell: We have a very broad mandate so we can pretty much do what we want.
We’re interested in the industrial space, manufacturing and distribution. SPACs
have so far focused on electric trucks and space ship travel and those
kind of things that can’t be measured.

CH: Hard to do a discounted cash flow analysis.

Zell: You’ve got to come up with preposterous assumptions for those things to
work. They may have. I’m not that smart. But my attitude is that the
environment right now suggests there are a lot of companies looking for homes.
They’re not necessarily distressed, but things have changed.

CH: You’ve long been a follower of megatrends — making real estate investments
around expectations of what the Baby Boomers are going to do, for example.
What are the trends you still hold to and which are you discarding?

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Zell, 2016.
Getty Images

Zell: The number one megatrend in my head is an un-megatrend. All this

discussion about the “end of urbanization,” and working from home, and the
world is going to change, and you’re going to live in Noplace, Iowa and you’re
going to work for a clothing company. It’s not going to happen. We’re social
animals. I’m happy to be very clear that I think people are looking at
this current lockdown and extrapolating results that are
preposterous.

CH: I understand that during the pandemic you’ve been working from the office
in Chicago?

Zell: I’ve been here every day. For the first three or four months there was no
one else here. It was a little quiet. But I’ve never been an at-home worker. Covid,
because it has so many uncertainties, tends to generate all kinds of speculation.
When Covid became an epidemic at the end of March we were looking at 2
million deaths by the end of the year. We’re one-tenth that number. The
economy, unless you’re in the travel and tourist business, the economy ain’t so
bad. The numbers of our companies how they did last year versus this year, a
number of them are plusses, despite the lockdowns. It’s a little bit like Mark
Twain saying the reports of his death are greatly exaggerated.

CH: Well we thank you for your time today, and look forward to 2021 being a
better year.

Zell: It’s going to be an interesting year. More than anything else I want to see
activity. Because activity delineates price discovery. We haven’t had a lot of
price discovery, and we need some.

Click here to see the interview (starts around minute 40), and other
great guests at the Forbes/Shook Wealth Summit.

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From Zell HQ.

Forbes/Shook Conference

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