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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
In Real Estate Titans, Erez Cohen shares the advice and learnings of the world's leading real estate experts to create a guide for becoming a savvier real estate player. Cohen draws on his experience as a research and teacher's assistant at Wharton Business School with an investment expert--and his mentor--Dr. Peter Linneman. Throughout his career, Cohen has collected first-hand knowledge from meetings with such real estate titans as Ronald Terwilliger, Sam Zell, Joseph Sitt, and numerous others. Cohen wanted to understand how these real estate giants became so successful, so he refined his quest into three critical questions: What inspires these titans to work so hard and reach such extraordinary levels of success? What are the main elements and traits inside of them that propel them to be so grandiose? How have these individuals, who had less resources, succeeded on a much bigger scale than so many of their competitors? Real Estate Titans contains the 7 key lessons distilled from interviews with several of the world's greatest real estate investors. These critical lessons offer insight into the mindset, tactics, and habits that each of the interviewed titans possess. Once you implement these key ideas--which you won't find anywhere else--into your business, it will grow exponentially within a matter of months. Real Estate Titans offers an insider's view into several of the most successful investors on the planet. The book's compelling stories and lessons show why real estate is such a wonderful and important business, and it also offers a roadmap for becoming a world class real estate player.
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Veröffentlichungsjahr: 2019
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Praise for Real Estate Titans
“Real Estate Titans gives a fantastic overview of what the best investors and developers in the world have done to get to the top—and how you can too.”
— Rodrigo Suarez, Co-Founder & Managing Partner of HASTA Capital
“Erez takes his readers on a journey through his own career and numerous interviews with several of real estate's most successful entrepreneurs. In the process, he distills seven instrumental lessons that are a must-read for every professional, regardless of the stage of their career.”
— Ashesh Parikh, Managing Principal at Lock Three Properties
“Forget all the infomercials promising you real estate wealth with no work and no money down. Educate yourself with the world's elite real estate players who found different ways of creating multi-million and multi-billion dollar real estate companies from scratch. Many of their secrets are in this book, and Erez has done an incredible job summarizing what really matters most. This book will get you on the fast path to success in real estate investing.”
— Austin Netzley, Author, Investor, and Founder & CEO of 2X
“Erez Cohen has discovered the secrets of real estate titans and shares them in this must-read book for anyone who is serious about becoming rich through investing in real estate.”
— Brian Zaratzian, Founding Partner of Omaha Beach Capital
“Erez has assembled an eclectic mix of real estate industry leaders for an intriguing behind-the-scenes look into decision-making at the highest levels.”
— Dr. Sam Chandan, Dean of the Schack Institute of Real Estate at NYU
“A must-read book if you want to achieve extraordinary success in the real estate game. The proven and tested principles shared by the Real Estate Titans in this book are simply not available anywhere else. A mind-expanding and thrilling read.”
— Mark Anastasi, Author of the New York Times Bestseller The Laptop Millionaire
“Our industry is a fascinating one and second only to the brilliance of those who lead it. A unique culmination of perspectives that are intriguing in their own right and combined, a powerful take on what it requires to be a titan of real estate. A top read for anyone looking to climb to the top of the Commercial Real Estate ladder.”
— Will Friend, CEO of Bisnow
“It would take years of your time and a lot of your energy to travel the world and chase down these real estate icons for an interview. Read this fascinating manual more than once. Each time, you will uncover new insights.”
— Andrew Strenk, Global Retail Expert & CEO of Strategic Planning Concepts International
“The insights and experiences shared from the Real Estate Titans in this book are pure GOLD! If you want to learn from the best of the best and conquer real estate investing; I urge you to read this book.”
— Joshua Lybolt, President, Lifstyl Real Estate
“Whether you're a full-time real estate entrepreneur or a part-time investor, Real Estate Titans contains wisdom that will be instrumental to making smart decisions and dreaming big.”
— Patrick J. McGinnis, Author of The 10% Entrepreneur & Host of the podcast FOMO Sapiens
“Erez—and the titans he interviewed—are authorities on real estate. If you want to learn how to invest in real estate better than anyone else, read this book now.”
— Alan Burak, Hedge Fund Manager & CEO of Never Alone Capital
Real Estate Titans
7 Key Lessons from the World’s Top Real Estate Investors
EREZ COHEN
Cover image: © Fastrum/ iStock.com Cover design: Wiley
Copyright © 2019 by Erez Cohen. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.
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ISBN 9781119550044 (Hardcover) ISBN 9781119550082 (ePDF) ISBN 9781119550075 (ePub)
To Shlomo and Edna
Acknowledgments
There are so many extraordinary people who helped me in this journey, I am deeply grateful for their untiring encouragement and support.
I would like to thank the Real Estate Titans interviewed in this book, I am deeply grateful that they agreed to share their unique wisdom with the world.
This book would not have been possible without the inspiration, intelligence, and support of Dr. Peter Linneman, who has been a guiding presence in my career. I never stop learning from his prodigious insights and feel deeply privileged to call him my friend.
I would also like to thank two other mentors and close friends: Jaime Lara, my business partner, for his teachings and leadership, and Gerardo Ruiz, for his guidance and optimism.
To my brothers, sisters and other family members, thank you for all your support.
To my friends and industry colleagues: Isaac Sutton, Salomon Sutton, Alan Burak and Sandy Ohebshalom, Varun and Pooja Mammen, Aman and Amrita Kumar, Ivanka Trump and family, the Alcalay family, the Ohebshalom family, Andrew and Annie Strenk, Tony Robbins, Mark Anastasi, Brian Zaratzian, Yoel Amir, Gili Raichstain, Atul Narayan, Nathalie Virem, Jorge Margain, Rodrigo Suarez, Olivia Schmid, Michael Delmar, Douglas Cain, Jerome Foulon, Gerald Marchel, Clifford Payne, David Orowitz, Elias Fasja and family, Jaime Fasja, Jimmy Arakanji, Sandor Valner, Douglas Linneman, Asuka Nakahara, Jeff Thelen, Laura Figueroa, Jonathan Sizemore, Jason Chow, Ariel Tiger, Blanca Rodriguez, Josefina Moises, Gabriel Patrick, Margarita Infanzon, Adi Weinstein, Lyman Daniels, David Daniels, Bruce Kirsch, Austin Netzley, Ricardo Cervantes, Ricardo Zuñiga, Adrian Aguilera, Héctor Sosa, Fernando Delgado, Ursula Guerra, Santiago Collada, Jose Askenazi, Jose Cohen, Dany Izbitzki, Jennifer Skylakos, Vince Chamasrour, Marcos Sando, Simon Coote, Guillermo Rivera, Rodrigo Lopez, Karen Sanvicente, Jorge Laventman, Abraham Garcia, Mauricio Durante, Sebastian Gonzalez, Enrique Mendez, Juliana Roman, Francisco Navarro, Gihan Neme, Alba Medina, Lorenzo Berho, Mauricio Khalifa, Jorge Henriquez, Elizabeth Bell, Aaron Kraig, Lea Ribeiro de Oliveira, Gleides Noronha, Emily Walter, Patty Aguilar, Karren Henderson, Beth Merrick, Angela Sciandra, Annette Vargas, Debbie Larson, Bianca Ledermann, Doris Goldych, Joseph Warmann, Mark Lack, Peter Voogd, Benjamin L. Shinewald, Wesley Whitaker, and Federico Martin del Campo.
Finally, thank you to my real estate classmates at the Wharton School for sharing with me their passion for business and real estate. I honor you all.
CONTENTS
Cover
Acknowledgments
Introduction
Notes
Part I Interviews with Real Estate Titans
Chapter 1 Richard Mack
Understand the potential downside of a deal
In His Own Words
The Big Opportunity
The Polish Job
Local Knowledge
The Radio Tower King
The Stroke of a Pen
Investment Philosophy
Starting Over
Big Opportunities
A Little Leverage
Technology
Keep the Faith
My Philosophy
Notes
Chapter 2 Urs Ledermann
Your final users should be your biggest fans
Humble Beginnings
Reimagine the Vision
Seeking Beauty
Not All Roses
Starting Over
Learning by Doing
Chapter 3 Ronald Terwilliger
The secret to living is giving
Love What You Do
The Importance of Mentoring
Be Realistic
Real Estate and Recessions
Keep Learning
The Two Markets
My Philosophy
Chapter 4 Gina Diez Barroso
A beauty of a mission
Starting Out
The Right Project
The Real Estate Business
Technology
Education Is My Passion
Dalia Empower
My Advice
My Philosophy
Chapter 5 Elie Horn
There is no reward without risk
Humble Beginnings
Keep Learning
My Philosophy
Notes
Chapter 6 Richard Ziman
Success is about making a difference
The Early Days
Opportunities
Family Business
Mentors
Finding the Perfect Deal
Chapter 7 Robert Faith
Real estate is an entrepreneurial business
In His Own Words
Sweat Equity
The Denver Downsides
Adding Value
Additional Advice
Career Advice
Mentors
My Philosophy
Chapter 8 Chaim Katzman
The sky is not falling
Starting Out
Trends in the Marketplace
Disruption
Words of Wisdom
Chapter 9 Rohit Ravi
Find the supply and demand imbalance
The Foundation
Developing an Island
Starting Over
Market Shocks
Technology
My Philosophy
Chapter 10 Joseph Sitt
Learn to understand customers and what they wantPhoto credit: Zev Starr-Tambor
In His Own Words
Starting Out
Valuable Lessons from the Stock Market
Approaching Real Estate Deals
Opportunities
Favorite Deal
Common Mistakes and Mindsets
Mentorship
Technology in Real Estate
Routines
Final Thoughts
Chapter 11 Carlos Betancourt
Patience is the ultimate virtue
In His Own Words
My Favorite Deal
Hard Lessons
Risky Business
Leverage
Technology
Leadership Skills
My Philosophy
Part II The 7 Key Lessons
Chapter 12 Key Lesson #1: A Powerful Mindset
Perfection in California
The Power of the Mind
Food for Thought
Habits That Help the Mind
Notes
Chapter 13 Key Lesson #2: The Hardest Workers in Any Room
They Have a Purpose
Passion
The Lesson Kobe Bryant Gave to Jay Williams on Hard Work
Geometric Results
Notes
Chapter 14 Key Lesson #3: Deep Focus and Clarity
Recommendations on Goal Setting
A Personal Example on the Power of Goals
Clarity
Develop a Specific Area of Expertise
Clarity in Real Estate Investing
Time Management and Planning
Lessons on Focus in Development from Ronald Terwilliger
A Story of Focus
Notes
Chapter 15 Key Lesson #4: Educated and Quantitative
Read
Feed Your Mind with History
Numbers, Back of the Envelope (BOTE) Analysis, and Spreadsheets
Taxes
Asymmetric Risk Reward
Understanding Geometric Returns
Prepare for Downturns
A Note on Financing
Notes
Chapter 16 Key Lesson #5: Surround Themselves with Greatness
Surround Yourself with Smarter People
Power of the Mastermind
Mentors
Giving Value
Notes
Chapter 17 Key Lesson #6: Extraordinary Salespeople
Sell the Dream
A Surprising Fact About Sales
A Sales Master at WeWork
Presentation Skills
Notes
Chapter 18 Key Lesson #7: Execute their Ideas
Analysis Paralysis
Timing
Belief in Yourself
Final Thoughts
Appendix A: A Conversation with Wharton’s Dr. Peter Linneman
In His Own Words
Real Estate Deals
The Next Generation
Bad Partners
Heroes
Lessons
Appendix B: Value Add—A Case Study
Case Study—Altavista 147 in Mexico City, Mexico
Glossary
A Recap of the 7 Key Lessons
About the Author
Index
WILEY END USER LICENSE AGREEMENT
List of Tables
Chapter 14
Table 14.1
Chapter 18
Table 18.1
List of Illustrations
Introduction
Figure I.1 The value of the world’s real estate.
Chapter 1
Figure 1.1 Four categories along the spectrum of real estate risk.
Chapter 3
Figure 3.1 The capital stack of real estate, showing low to high risk.
Chapter 5
Figure 5.1 Pinpointing levels of risk and return.
Figure 5.2 Moving deals through a funnel to find the best ones.
Chapter 11
Figure 11.1 Three main cycles—economic, political, and real estate.
Chapter 12
Figure 12.1 The ups and downs of an entrepreneur’s day.
Chapter 13
Figure 13.1 Real Estate Titans are not afraid of hard work.
Figure 13.2 Ikigai can help you find your purpose.
Chapter 14
Figure 14.1 Choose one specialty, not all, to avoid falling into the black hole of retail. ...
Chapter 15
Figure 15.1 A small risk can yield a big reward.
Figure 15.2 Earnings generate more earnings over time.
Chapter 16
Figure 16.1 People in Gina Diez Barroso’s circle of influence.
Figure 16.2 A small network can lead to a large network, a big net worth, and notable influ...
Appendix B:
Figure A2.1 Altavista 147
Figure A2.2 Retail space around Altavista 147.
Guide
Cover
Table of Contents
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E1
Introduction
I really think we have a good chance to do this deal,” said Ivanka Trump with a glamorous smile, slowly tilting her head toward me.
I was surprised. I had begun to wonder what she could possibly see in these rejections that I didn't. I was sweating profusely, in this majestically decorated office on the 25th floor of Trump Tower, feeling somewhat out of my league. Myriad investors had turned us down. How would a deal possibly come together at this point?
I was not optimistic. A small frustration had grown into an overwhelming sense of apathy, and I was ready to throw in the towel. In my mind it was just too tough to make this deal happen. No matter what our proposal was or how much we were willing to add in value, the investment groups we were negotiating with did not want to go ahead.
Faced by her surprising enthusiasm and confidence, I wondered if there was something I had missed. It became obvious that Ivanka had a different mindset. It would be months before the idea dawned on me that she had the mindset of a Real Estate Titan.
Thanks to her many qualities—among them a powerful mindset, an impressive work ethic, clarity, and resourcefulness—she was indeed able to convince several investors, a few weeks later, to proceed with the investment.
It was summer 2010, and I had just been shown up. I witnessed in person the big leagues of the real estate world. This experience fueled my passion for real estate even more. I decided it was time to embark on a quest.
My Quest to Meet the World's Real Estate Titans
Fresh out of college, I joined a large New York investment banking firm. I guess the partners were motivated by my perseverance and diplomacy, something my father, who made his career as an ambassador, had instilled in me from a young age.
Whether through luck or fortune, I was assigned a position with the real estate group. Just a few short days later, a colleague handed me a real estate textbook with a light blue cover: Real Estate Finance and Investments: Risks and Opportunities by Dr. Peter Linneman.1 That book sparked my love affair with real estate that continues to this day. It equipped me with a strong financial real estate base and the technical terms necessary to navigate the demanding moments of institutional real estate investing.
But not until I worked for Ivanka Trump did I truly commit myself to learning from “the greats” in this field. What inspired these Titans to work so hard and reach such extraordinary levels of success? What are the main traits that propel them to such great achievements? How have these individuals succeeded on a much bigger scale than so many of their competitors? I would get the answers by seeking out these great men and women and by doing my utmost to meet with them personally. It took me a decade.
My quest would bring me into contact with real estate Titans such as Richard Ziman, Richard Mack, Ronald Terwilliger, Chaim Katzman, Elie Horn, Joseph Sitt, Urs Ledermann, Donald Trump and children, Carlos Betancourt, Ronnie Chan, Barry Sternlicht, Sam Zell, Steven Roth, Jonathan Grey, Stephen Ross, David Simon, and others.
“Waking up every day and loving what you do has a direct impact on your quality of life and on the bottom line of your business,” the Real Estate Titan Urs Lederman once told me. Richard Mack shared this me: “Knowing the downside of any deal is far more important than knowing the upside.” Sam Zell taught me that good risk managers “will never fall in love with the assets or companies they own.”
Little did I know that over the span of a decade the hundreds of insights gained from these luminaries would lead me to develop more than 12 million square feet of real estate and be involved in real estates deals totaling more than $3.5 billion throughout Mexico, the United States, and Brazil.
On a trip with a real estate mastermind group in Los Angeles—I now run these get-togethers once a year—one of my real estate billionaire friends said: “Hey Erez, I think you should write a book about real estate. Like, you know, to share the tips you've picked up along the way from the best real estate investors in the world. Few people have had these types of experiences …”
“That's not a bad idea,” I said, mulling it over.
“I could call it Real Estate Titans.”
Making Real Estate Wisdom Go Viral
In Greek mythology the Titans were a race of gods. One of the Titans, Prometheus, decided to help the human race by handing them the gift of fire and teaching them to use it. In a similar way, the Titans in this book have decided to share significant real estate wisdom with you.
I have two goals with this book. The first is to impress upon you—through the many stories and lessons shared by these modern-day Titans—that real estate is a wonderful and important business.
Wonderful because in my opinion there is no more intriguing, exciting, fun, and rewarding field in which to make a career. For example, you can change the way a city, district, neighborhood, or street looks like and operates. You can create beautifully designed spaces in which people live, work, and play. You can work with cities to create jobs and build new infrastructure. You can create an investment vehicle and take it public. You can raise an institutional fund and invest it in different geographies. You can interact and work with all kinds of people from different ethnicities, religions, nationalities, and academic backgrounds. You can see the world. The possibilities are endless.
In real estate, there are unlimited points of entry. It is the ultimate field for entrepreneurs. You don't need substantial capital to start; you just need to be resourceful. You can access financing. You can access friends and family money. You can use other people's money. You can be in this business owning one property or a thousand.
Important because every person on the planet is exposed to real estate every moment of every day: Real estate is a part of our everyday life, and it plays an integral role in our economy. Historically, real estate is also the greatest source of wealth and savings for most families around the world. According to several professors, in the last few centuries more fortunes have been made in this asset class than in any other.
Real estate is also the largest asset class in the world. According to Savills,2 an international real estate brokerage and advisory firm, the value of global real estate as of 2017 is US$228 trillion (see Figure I.1). This exceeds—by almost a third—the total value of all globally traded equities and securitized debt instruments, which points to the important role that real estate plays in any economy around the world. To add additional perspective on this colossal number, the value of global real estate is 2.8 times higher than the world's total annual income (Gross Domestic Product, or GDP).3
My second goal is for you to become a savvier real estate player by learning from the best in the world. Years ago, one of my mentors taught me that the best way to achieve success is go find the best in the world, in whatever field it is you want to pursue, and model them. This is what I have attempted to do in this book. There is no need to reinvent the wheel, simply find the best and learn from them as much as you can. Throughout this publication, you will find intriguing stories and lessons of real estate entrepreneurs with impeccable advice about what to do—and not to do—in real estate.
Figure I.1 The value of the world’s real estate.
You will also find 7 key lessons that I extrapolated from these interviews. These lessons include key traits and characteristics I've noticed in each Real Estate Titan I have worked for and interviewed, as well as critical elements of their strategies for success.
If you implement these 7 key lessons in your real estate business—and do the exercises at the end of each lesson—you will see your sales increase and the value of your real estate company take off in a matter of months. The growth will be like nothing you've ever experienced, and once the momentum starts, it will be hard to stop.
Enjoy your journey with the Real Estate Titans!
Notes
1.
The latest edition of this textbook also is co-authored by Dr. Peter Linneman and Bruce Kirsch.
2.
Savills World Research Report
,
December 2017.
3.
Ibid
.
Part IInterviews with Real Estate Titans
The following interviews are intended to share the wisdom of some of the best and most successful real estate investors in the world; however, as you read their compelling stories understand that real estate is driven by logic and experience, and what has worked for one person might not work for another. There is never only one answer or one approach to a real estate deal or a problem. My goal for you is to use their knowledge as a base to embark upon—or continue in—the long and exciting journey of real estate.
These interviews assume that you have the basic knowledge of real estate terms such as yield on cost, internal rate of return (IRR), cap rates, leverage, and more. But if these terms are unfamiliar to you, please refer to the Glossary at the end of the book for definitions and explications.
Chapter 1Richard Mack
Mack Real Estate Group, New York, New York, USA
Understand the potential downside of a deal
It is a rudimentary principle of portfolio management theory to incorporate alternative assets as part of a diversified portfolio. One of the most popular alternative investments for sophisticated investors is real estate. While it serves as a partial hedge against inflation, it is also a way to enjoy the potential of a steady cash flow stream.
Within the real estate space, institutional investors are probably most attracted to the private equity arena. Real estate private equity funds have been attracting large amounts of capital with assets under management reaching an all-time high as of the end of 2017 of $811 billion.1 One private equity real estate giant is Richard Mack.
In His Own Words
I was at the top of my class in high school, but not in college. I guess I wanted to have fun, experience being in a fraternity and think creatively away from my major, but I was a hard worker and later regretted my lack of academic discipline in college. By the time I entered college, my father had established himself as a very successful developer. I graduated at a time when people commonly assumed that the son of a successful businessperson was not capable. When I started working, I felt that I had a lot to prove.
I graduated from the Wharton School at the University of Pennsylvania and was very lucky to get a job with Shearson Lehman Hutton. Despite expectations, I didn’t always work for my father, and he did not find me my first job. I was fortunate to meet Bill Kahn, a managing director at Shearson Lehman Brothers, in their real estate investment banking group. He took a chance on me. Maybe he saw that I was passionate about hard work and real estate investments. Maybe he wanted a relationship with my father. Either way, he offered me a job, and real estate investment banking seemed a natural fit. I always enjoyed doing things that required self-motivation, creativity, and hard work. I also felt that growing up I had learned a lot about development at the dining room table and that I had an aptitude for real estate. That’s pretty much how I ended up getting into the business.
In real estate investment banking in the late 1980s, profit was driven by tax syndications, powered by accelerated depreciation rules for real estate or tax arbitrage. Those loopholes all closed in 1986. By the late 1980s real estate investment banking was in retrenchment. I was forced to restart my career in 1990 just after getting started. Within six months, there was a massive firing across the real estate investment banking division at Shearson. Four of five managing directors and their teams were let go. The one remaining managing director would not even interview me because I was “a rich kid.”
Fortunately, I preemptively made two moves: (1) I reached out to my old boss from when I was a summer intern in the facilities department at Shearson, and (2) I applied to law schools. I got the job and shortly after that got into law school.
Shearson was then owned by American Express and their facilities departments were combined. While my experience was brief, I will never forget the lessons that I learned there. The most interesting experience I had in the facilities department, and the one that was the most exciting, occurred during a very weak real estate leasing market. I was sent to Long Island in New York to negotiate with a landlord a renewal for American Express, one of the largest companies in the world. American Express had backup computer systems in a Long Island distribution/office building. The landlord could have tripled the rent and American Express would have stayed: the cost to move the equipment was prohibitive. Instead, I was able to negotiate a significant rent reduction based upon market rents having fallen. This experience made me realize the power of information in real estate, what it means to be a tenant, and what corporations/users see when looking at real estate.
The Big Opportunity
The early 1990s was a really bad time for real estate. As I was graduating from law school, my father invited me to join him in his foray into real estate private equity with Leon Black. They were forming Apollo Real Estate. With an initial $500 million fund, this untested real estate private equity concept would pursue “distressed” investment opportunities in the United States and Europe. I enjoyed this experience because I got to live through all the initial stages of creating a real estate investment company, the advent of the real estate private equity business, and the highs and lows (but predominantly highs) of successfully closing on many dozens of equity and debt investment opportunities.
So far in my career, I’ve been involved in the investment of more than $16 billion of equity in real estate transactions all over the globe that I would estimate to have a value of more than $80 billion. While the fund business would prove to be tremendously interesting and lucrative, I always remember the first significant money I made for myself, which was not through the equity fund business. It was something I did on my own, and taught me the value of being opportunistic and the importance of not relying on others (i.e., fund investors) to take a risk that I was not prepared to take on my own.
In my mid-twenties, I bought land with three radio towers on it, paying ground rent, in Montauk, New York. The towers on the land were owned by the tenants, but the land lease was very short. Other buyers at the time were concerned that the tenants would move the towers or that satellites would replace cell towers completely. I was not sure about the technology, but I was pretty sure that the town would not allow these towers to be moved to another location. As a result, I was able to buy the cash flow at a six multiple, a very attractive number to me. I was betting that the underlying demand for users of those towers would increase because cell phone usage would have to increase and that satellite would be too expensive. It was the beginning of the mobile communications era.
I was able to put up the money myself with another partner who wanted to invest. I had to borrow recourse debt, which meant I had to pledge personal collateral to the bank. Fortunately, after all my diligence and efforts, it turned out that our investment thesis was correct, and demand for these towers skyrocketed.
More importantly, there were no competing radio towers anywhere nearby, and the town was not going to approve new ones. Because of this, I took title to the towers and quadrupled the EBITDA by converting subtenant income into direct income from the telecommunications companies. In retrospect, the investment seems straightforward, but at acquisition this seemed a risky proposition. In fact, I could not get a nonrecourse loan. I had to leverage my whole life in order to get help from the bank. So, I put my guts on the line and I was lucky. Not only was I was able to dramatically increase the NOI, I eventually sold the towers at a 14 multiple.
The lesson to learn from the radio tower deal is that sometimes real estate is mispriced, and for a short period of time, the market players will overlook this. Sometimes, you will see a shift in the market or realize that technology’s going to make a change, and you can be one of the people who realize early that the shift will eventually lead to a shift in real estate value. The success of this project left me brimming with confidence and I have tried to leverage these lessons for the benefit of the many partners who have entrusted me with their capital over the years.
The Polish Job
One of my favorite deals took place in Poland in 2004, just before the country joined the European Union. A company called Metro had built a large portfolio of shopping centers all across the nation and was looking to exit. They wanted to take their money out of Poland and start investing in China.
These shopping centers were purpose-built to be occupied by Metro’s several large big-box/category killer concepts. Metro had a hypermarket tenant, an electronics retailer tenant, a “do it yourself”/Home Depot tenant, a “dress for less” tenant, and a big-box sports concept. Metro would add a McDonalds, a video store, and other service tenants to the mix and create a big-box center/mall. They built these centers as a way to have a first mover advantage and launch their retailers in Poland quickly. Metro had no reason to own the real estate long term; they had better uses for their capital than real estate and therefore, they just wanted out of the Polish hard assets. They had tried to list the portfolio on the Polish stock exchange as a REIT. When this failed, they valued certainty. This allowed us to negotiate a good deal. We bought these shopping centers for €775 million, refinanced them at €840 million a year later, when Poland formally entered the EU, and then sold 50 percent of the properties at an even higher valuation. We were able to generate an annualized rate of return of more than 100 percent on that deal over a long hold period and a multiple on equity of more than 5x—not because I’m a genius, but because we made the right call on Poland early and had the right partner in the Mitzner family. When Metro needed to sell quickly and wanted an experienced landlord in Poland that they could trust and live with over a long term, we were the natural choice. Apollo-Rida, our joint venture with the Mitzners, was established and ready to take advantage of the opportunity.
How did this happen? In 1996 a famous Pole and former professional tennis player, Woitek Fibak, took me on my first trip to Poland. After that trip I became convinced that Poland was never going back to communism. This was not a universally held belief.
However, I also realized that most of the local real estate people were inexperienced, or, worse, were likely to try to take advantage of a foreign investor. Luckily, we had a relationship with the Mitzner family. The patriarch was a Holocaust survivor who had moved back to Warsaw.
Apollo-Rida built its first office building in Poland with an 18 percent unlevered yield on cost, something unheard of in the West. That was followed by many more developments and acquisitions, including the acquisition of the Warsaw Trade Tower from Daewoo of Korea.
In 1996, I bet that Poland was headed in the direction of the West. I thought that they would be allowed into the European Union, their market would grow rather than shrink, and the value of these properties would rise—but I had to convince my partners, which was not easy. I had to make a compelling case.
During my time there, I saw massive opportunity. There was a large supply-and-demand imbalance. Demand was four to five times higher than supply, according to the market info I gathered. Before you begin to think that I’m clairvoyant, I didn’t discover these numbers simply walking around office buildings, warehouse buildings, and shopping centers and watching people; together with the Mitzners we spent significant time with brokers, market consultants, tenants, and customers. The local leasing brokers would provide lists of tenants that could not find space. Incredibly, these tenants were major credit multinationals. Their demand was well in excess of the existing stock of modern space.
At the time, many investors were bearish and worried that Poland would slide back into communism, taking their investments with it. Rather than listen to newspapers or pundits on television, I went to speak in person to the people who were living in this economy. We discussed the growing middle class and the availability of low-cost labor. The information I gathered got me very excited. I concluded that the availability of cheap, well-educated labor and a large population starved for Western products would be irresistible to multinational companies that wished to produce and sell in country.
People kept asking me, “Are they going back to communism?” I was just a kid at the time, but it was people my age who were to determine Poland’s future. They wanted freedom and prosperity and I saw they were prepared to work hard to achieve them. It was being on the ground and speaking to a myriad of people that allowed me to make a comfortable bet against Poland’s reversion back to communism.
The venture finally sold off its last shares in that deal in 2018, more than 20 years after my first trip. In this deal, like others before and some that would come, I realized that information is a very big advantage. You just can’t beat the value of local knowledge and boots on the ground.
Local Knowledge
Often money is made on the macro side of investing; you get the trend right and the trend is your friend. Buying real estate from the Resolution Trust Corporation (RTC) in the early 1990s was one of these great macro bets. Macro bets in real estate tend to be cyclical bets about timing, which means that you need to be able to make micro bets to generate excess returns when markets are in equilibrium. As it relates to micro bets, it is important to realize that land appreciating in value is the primary way to make money in real estate, because buildings depreciate. And that always comes down to location.
Knowing the details of the region where you are investing is of critical importance in real estate. Profit in purchasing land is the combination of local knowledge to find the right property and an understanding the macro principle of where you are in the current real estate cycle.
To succeed as a developer, I deeply believe you must stick to the region you know the best. You must understand the micro. Going outside your local area can be very dangerous—which leads me to my worst deal.
The Radio Tower King
After my success with the radio tower deal in Montauk, I thought to myself, “Hey, I know some things about radio towers. Now that we are doing private equity deals, let’s go and do more.” While we were looking for a large investment opportunity in radio towers, two junior members of my team uncovered something that seemed interesting. It was the opportunity to buy a radio tower construction firm.
The contractor’s pitch was that communication companies were asking him to deploy cell equipment towers and when no tower was built in a coverage area, he would be able to build them and lease space to the carriers. Unfortunately, this sale/leaseback pitch was simply not true.
I was a young 30-something back then, relying on very bright 20-somethings. Bottom line, we did not perform sufficient due diligence on the construction partner because we wanted to believe that he was acting in good faith. Unfortunately for us, he was not. Additionally, the numbers convinced us that it didn’t matter if we built towers at all because the income from construction itself was so good.
The problem was that the projections provided to us were wildly optimistic and bordering on fraudulent. Our business was real estate, and getting into contracting, which is a completely different industry, required a different skill set. We discovered that the contractors were lying to us about their ability to land contracts and own the towers. We got played.
We had a really good idea, but a good idea is not enough to guarantee success on its own. If you invest with the wrong people, rely on flawed documentation, or don’t fully understand the mechanics of the asset, you are doomed to failure.
I accept full responsibility for the loss we took on this investment. These mistakes led my worst deal to directly follow my first exciting deal. It was a good lesson.
The Stroke of a Pen
A single law change—the 1986 tax reform bill—put more than a few developers out of business. But in retrospect, it was this change in the tax law in the mid-1980s that set up Apollo and other real estate private equity fund managers for success. In the early 1990s, our company, Apollo Real Estate, made a great deal of money cleaning up the excesses that resulted from overdevelopment, overvaluation, and overlending in the 1980s.
Because of accelerated depreciation and tax syndication, many investments were made purely for tax reasons. When the law on accelerated depreciation changed, values collapsed and many real estate developers and banks lost a lot of money. The Resolution Trust Company was created to clean up the mess—to liquidate the assets of the banks and savings and loan companies.
In response to the unprecedented need for real estate capital, many of the large institutions that dominate the real estate market today were created or expanded dramatically. Real estate private equity funds, commercial mortgage-backed securities, and real estate investment trusts are examples.
Investment Philosophy
There are two primary areas you must understand to succeed in real estate: The micro and the macro, or the overall state of the real estate business and the particulars of each deal.
The most important question I ask myself in any deal is, “What is the current or expected cash flow that the property is producing and why?”
Determining this cash flow is critical. Although there are many subjective factors in every single deal, knowing how much money a property can generate is the one objective fact you can base your decisions on. You’re looking at both absolute and relative returns. You can assess if the risk and returns warrant the investments.
Talking about numbers and assessing risk isn’t nearly as glamorous or exciting as the subjective factors. Everyone thinks they are more important and love to talk about them, but those factors change all the time.
Don’t get caught up in that conversation just because it’s interesting. Focus on the factors that remain consistent. I always ask myself two questions when assessing an opportunity:
1. What do I firmly believe about this property that other people don’t believe?
2. If I’m wrong, what happens to me and to my investors?
The second question is far more important than the first. I’m trying to assess the potential downside. What will happen if every single one of my beliefs and assumptions is completely wrong? How hard will the downside be?
Knowing the downside of any deal is far more important than knowing the upside. When you are using this critical thinking process, success comes down to whoever has the better information.
Within real estate investing at the property level, assets are usually clustered into four main categories based on investment strategy and perceived risk (see Figure 1.1):
Figure 1.1 Four categories along the spectrum of real estate risk.
Starting Over
New real estate investors like to ask me what I would do if I were starting over. Most people at the top of the mountain struggle to give actionable advice because they are too far removed. They don’t remember what it’s like at the start of their journey. It was too long ago.
When seeking a mentor and wisdom, approach local investors and try to find someone who is doing what you want to be doing in real estate—someone who is more successful than you and still remembers what it’s like to be in your position.
I started my real estate career almost 30 years ago and, as much as I’d like to say my memory is rock solid, my perspective is inevitably going to be colored by the lens of time.
Big Opportunities
In the United States right now, because of the regulatory environment, I see institutional ownership of debt as a very good opportunity with good risk-adjusted returns. In Europe, I consider value-add to be a more interesting space. In Mexico and Latin America, mezzanine financing and preferred equity for development is an interesting opportunity.
In Asia, in general, it’s very tough to get in as an outside investor, particularly in China. It’s going to take a period of local financial distress for us private equity outsiders to get a real foothold there. Watch the news for an Asian downturn or a time for Asian businesses to be more open to outside investment, especially in mainland China. That’s when the opportunities will start to appear.
Emerging markets in the world offer the biggest growth opportunities, but they also have the biggest risk. Growth is not only an indication of opportunity in real estate; sometimes, the flow of capital can be even more important.
You have to find the right fit to match your passion. If you are looking to get into property development, and you want to be at the start of something brilliant, then you can go to emerging markets. They’re building new things and taking amazing risks, and you can really create. You can be there for the first chapter of the story.
If your primary goal is to not lose money, there are better markets in which to focus your attention. A lot of people use real estate to support their pension, not just as a resource, but to provide returns later in life. That means you can take a lower risk for a lower return investment. That’s also a good approach.
