No serious dancing for Sam Zell now. It pays for hot properties.



Sam Zell, who made his fortune buying distressed commercial properties, can’t find a lot of bargains these days.

Instead, the historic real estate investor does something he typically avoids: follow the pack and spend big on something safer.

Its most notable real estate deal during the coronavirus pandemic came last month, when one of its companies agreed to pay around $ 3.4 billion for Monmouth’s real estate investment. Corp.

Far from being a shackled, struggling business, Monmouth owns 120 industrial properties in 31 states. The industry is one of the most profitable due to the high demand for fulfillment centers from e-commerce companies such as Amazon.com Inc.

Mr. Zell was also unable to secure a good deal as he had in many previous troubled deals. The all-stock deal reached in May is valued at over $ 18 a share, a near-record for Monmouth stock. He could possibly have to pay even more, since Blackwells Capital, which made a cash offer of $ 18 a share late last year, said it was weighing options, including a higher offer. .

Mr. Zell declined to comment. But the more conventional 79-year investment strategy is the latest sign that the pandemic has failed to produce the struggling opportunities many investors have expected.

Hotels, malls and other properties have suffered huge declines in revenue. But few homeowners have been forced to sell at steep discounts thanks to government stimulus packages and the Federal Reserve’s monetary liquidity policy that has limited foreclosures.

“From a monetary and fiscal perspective, the authorities have ensured that the distress will be extremely limited in all areas,” said Cedrik Lachance, head of global REIT research at Green Street Advisors.

Meanwhile, the popularity of online shopping and working remotely during the pandemic has raised big questions about when or if office buildings, malls and other types of properties would one day rebound. This has significantly increased the risk of purchasing such real estate at a price which may appear attractive.

Mr. Zell is known in the industry as the “tomb dancer” for his ability to pick up injured real estate at cheap prices, then sell it years later at a big profit. He bought dozens of office buildings seized in the 1990s at deep discounts. He eventually sold most of them under his $ 39 billion contract with Equity Office Properties in 2007.

Monmouth Real Estate Investment owns 120 industrial properties in 31 states, including this FedEx Ground facility in Dallas.


Photo:

Monmouth Real Estate

Yet on a recent conference call, Mr. Zell described commercial real estate as a “falling knife” – investors who think they are getting a good deal could end up bleeding themselves. Prices have not fallen enough in the sectors that are being beaten, he said.

“There will obviously be an opportunity in the retail business. I just don’t think it’s there yet, ”he said. He added that hotels also look expensive: “I can’t relate… the prices to how I see the opportunities.

Mr. Zell owns a range of real estate through private and publicly traded companies as well as other businesses. Its largest real estate holdings include its holdings in Equity Residential,

which owns nearly 80,000 apartments and Equity LifeStyle Properties Inc.,

one of the country’s largest investors in manufactured homes. Neither company made any major acquisitions or divestitures during the pandemic.

His firm Equity Commonwealth,

who agreed to buy Monmouth, was formed after a group including Mr Zell took control of an office building company named CommonWealth REIT in 2014 by ousting its board of directors in a proxy battle unusual. The new board raised funds by selling most of its assets, acknowledging that private investors were paying more for office buildings than their valuations in the public market.

The strategy was applauded by analysts. “Normally, businesses sell a few buildings and give each other a pat on the back,” Lachance said. “These guys kept going.”

Mr. Zell’s goal has always been to reinvest that money. “What this tells you about the Covid era is that they just couldn’t find real distress,” Mr. Lachance said.

How will the pandemic affect U.S. retailers? As states across the country struggle to resume operations, the WSJ is investigating the changing retail landscape and how consumers might shop in a post-pandemic world.

Write to Peter Grant at [email protected]

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