Back in the fall of 2006, almost twenty years ago, Sam Zell's Equity Office Properties Trust announced that it had entered into a definitive agreement to be acquired by Blackstone Real Estate Partners, in a transaction valued at approximately US$36 billion. This was a massive deal at the time, so much so that Sam Zell would later come to the University of Pennsylvania, where I was in grad school at the time, to talk to real estate students about how smart he was.

The transaction closed in 2007 and, in hindsight, it looked like he had timed the peak of the real estate market perfectly. But in all fairness, when asked about his clairvoyant timing, his response was that he had no idea (probably with a strong expletive somewhere in the middle). His honest answer was that Blackstone simply offered him a price for the portfolio that was greater than their own internal valuation, and so he accepted it.

Another question that he was asked went something like this: "Blackstone is likely going to break up the portfolio, sell off the assets individually or in chunks, and make boatloads of money. Why didn't you just do that?" Despite the peak-market timing, this statement ended up being true. Blackstone generated something like a $7 billion profit on the deal.

But Sam's response was that he couldn't. He cited an esoteric IRS rule that stipulates that once a REIT decides to sell all of its assets and formalizes a liquidation plan, it has a 24-month window to do so, or else get hit with additional corporate taxes. Regardless of the specific IRS section, his reasoning was simple: you never want to be a seller when buyers know you need to sell by a certain time.

This is, of course, intuitively true. Negative leverage is bad in negotiations. In other words, it is highly unlikely that Sam could have generated the same $7 billion profit. I mean, as far as I can tell, Blackstone didn't sell the last office building from the portfolio until 2018, over a decade later.

I was reminded of this principle when reading Prime Minister Carney's speech to the World Economic Forum this week. (This entire post was the best real estate segue I could come up with.) If you haven't read or heard it yet, I would strongly encourage you to do so. Leverage is crucial in negotiations, and it's best to do everything you can to manufacture it.

Cover photo by Kyle Fritz on Unsplash

Sam Zell, the billionaire real estate investor, died this week at the age of 81. That seems young to me. Or maybe I’m just being overly optimistic about life expectancy. This is around the US average.

Whatever the case, if you work in real estate, you likely know/knew of Sam. In my case, he spent a lot of time at Penn after he permanently endowed the real estate center (under both his name and his late business partner’s name).

I used to go and listen to him speak at least twice a year, and I would hang off his every word as a young student of real estate. “So wait, how does this all work?”

It was also at this time that he sold Equity Office to Blackstone for $39 billion (back in 2007, it was the largest private equity deal in history). Sam’s explanation for doing this deal was that Blackstone offered him more than what he thought the portfolio was worth, so he sold it. He took no credit for good market timing.

If you’ve ever heard Sam speak, you know that he’s incredibly direct. Generally, he also didn’t seem to give a fuck, and was happy being the only person in a Hawaiian shirt among a sea of blue and black suits.

In fact, he’s largely the reason that, as students, we used to all joke that the richer the speaker, the more funny and honest they would be. “Come on, let’s go to this one. She’s rich.” I guess this is just what happens when you no longer have anything to prove.

But none of this is to say that he didn’t care. He cared a great deal about the school and about helping young students. And for that, I say: thank you Sam. Thank you for being generous with your time.

A few days ago it was announced that Blackstone has entered the multi-family space in Canada through a JV with Starlight Investments. They are buying 6 undisclosed multi-family buildings. 5 in Toronto. And 1 in Montréal. The total is 746 units.

The message in the press release is that apartment buildings in Canada are difficult to find and buy at meaningful scale. Most are held by small private investors and those owners are reluctant to sell. 

At the same time, places like Toronto and Montréal have built relatively little purpose-built rental over the past few decades. Supply is restricted. 

This is an interesting stat from the announcement: The Canadian rental market is about 2 million housing units. Dallas, alone, is 500,000 units. But this must only be purpose-built, investment grade, and/or some other subset of units. Because there are over 14 million private households and over 4.4 million rented households in Canada (2016 data).

They also hint at a longer-term relationship between Blackstone and Starlight. Perhaps that will translate into some purpose-built rental development in the future.

On a related note, I recently picked up the book, King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone. It was published in 2012, so it’s not new. But as soon as I stumbled upon it, I picked it up. It was new to me.

Once I’m finished it maybe I’ll report back here on the blog.

Photo by Warren Wong on Unsplash

Back in the fall of 2006, almost twenty years ago, Sam Zell's Equity Office Properties Trust announced that it had entered into a definitive agreement to be acquired by Blackstone Real Estate Partners, in a transaction valued at approximately US$36 billion. This was a massive deal at the time, so much so that Sam Zell would later come to the University of Pennsylvania, where I was in grad school at the time, to talk to real estate students about how smart he was.

The transaction closed in 2007 and, in hindsight, it looked like he had timed the peak of the real estate market perfectly. But in all fairness, when asked about his clairvoyant timing, his response was that he had no idea (probably with a strong expletive somewhere in the middle). His honest answer was that Blackstone simply offered him a price for the portfolio that was greater than their own internal valuation, and so he accepted it.

Another question that he was asked went something like this: "Blackstone is likely going to break up the portfolio, sell off the assets individually or in chunks, and make boatloads of money. Why didn't you just do that?" Despite the peak-market timing, this statement ended up being true. Blackstone generated something like a $7 billion profit on the deal.

But Sam's response was that he couldn't. He cited an esoteric IRS rule that stipulates that once a REIT decides to sell all of its assets and formalizes a liquidation plan, it has a 24-month window to do so, or else get hit with additional corporate taxes. Regardless of the specific IRS section, his reasoning was simple: you never want to be a seller when buyers know you need to sell by a certain time.

This is, of course, intuitively true. Negative leverage is bad in negotiations. In other words, it is highly unlikely that Sam could have generated the same $7 billion profit. I mean, as far as I can tell, Blackstone didn't sell the last office building from the portfolio until 2018, over a decade later.

I was reminded of this principle when reading Prime Minister Carney's speech to the World Economic Forum this week. (This entire post was the best real estate segue I could come up with.) If you haven't read or heard it yet, I would strongly encourage you to do so. Leverage is crucial in negotiations, and it's best to do everything you can to manufacture it.

Cover photo by Kyle Fritz on Unsplash

Sam Zell, the billionaire real estate investor, died this week at the age of 81. That seems young to me. Or maybe I’m just being overly optimistic about life expectancy. This is around the US average.

Whatever the case, if you work in real estate, you likely know/knew of Sam. In my case, he spent a lot of time at Penn after he permanently endowed the real estate center (under both his name and his late business partner’s name).

I used to go and listen to him speak at least twice a year, and I would hang off his every word as a young student of real estate. “So wait, how does this all work?”

It was also at this time that he sold Equity Office to Blackstone for $39 billion (back in 2007, it was the largest private equity deal in history). Sam’s explanation for doing this deal was that Blackstone offered him more than what he thought the portfolio was worth, so he sold it. He took no credit for good market timing.

If you’ve ever heard Sam speak, you know that he’s incredibly direct. Generally, he also didn’t seem to give a fuck, and was happy being the only person in a Hawaiian shirt among a sea of blue and black suits.

In fact, he’s largely the reason that, as students, we used to all joke that the richer the speaker, the more funny and honest they would be. “Come on, let’s go to this one. She’s rich.” I guess this is just what happens when you no longer have anything to prove.

But none of this is to say that he didn’t care. He cared a great deal about the school and about helping young students. And for that, I say: thank you Sam. Thank you for being generous with your time.

A few days ago it was announced that Blackstone has entered the multi-family space in Canada through a JV with Starlight Investments. They are buying 6 undisclosed multi-family buildings. 5 in Toronto. And 1 in Montréal. The total is 746 units.

The message in the press release is that apartment buildings in Canada are difficult to find and buy at meaningful scale. Most are held by small private investors and those owners are reluctant to sell. 

At the same time, places like Toronto and Montréal have built relatively little purpose-built rental over the past few decades. Supply is restricted. 

This is an interesting stat from the announcement: The Canadian rental market is about 2 million housing units. Dallas, alone, is 500,000 units. But this must only be purpose-built, investment grade, and/or some other subset of units. Because there are over 14 million private households and over 4.4 million rented households in Canada (2016 data).

They also hint at a longer-term relationship between Blackstone and Starlight. Perhaps that will translate into some purpose-built rental development in the future.

On a related note, I recently picked up the book, King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone. It was published in 2012, so it’s not new. But as soon as I stumbled upon it, I picked it up. It was new to me.

Once I’m finished it maybe I’ll report back here on the blog.

Photo by Warren Wong on Unsplash