Sam Zell, chairman of Equity Group Investments, LLC, offered a broad perspective on the state of the REIT industry in an appearance at REITWorld 2013 in San Francisco.
The legendary entrepreneur predicted that the sector could double in size in the next 20 years.
"We've established a model that works," stated Zell, adding that the key to the sector's success has been "the seamless ability to convert from private to public."
Zell, who gave a landmark speech in 1993 that ushered in the modern REIT era, noted that the period from 1993 to 2013 has seen the industry's market capitalization grow from $7 billion to $700 billion.
"If you can successfully negotiate in the public markets, there will be no place your assets can get a higher value," he said. While admitting that he was not able to predict the staggering growth of the industry back in 1993, "I could see that every real estate operator would find the REIT structure the most attractive format for going forward."
Zell pointed out that from 1992 to 1997, 80 percent of major real estate players converted to REITs, which he described as a "staggering validation" of the industry.
Comparing the U.S. REIT industry to those seen elsewhere in the world, Zell stressed that in the United States, the "enthusiasm and willingness" to embrace the REIT approach to real estate investment has made a difference in the success of the industry. He also emphasized the importance of good governance.
"If I need to create some kind of second class of stock to protect Sam from the rest of the company, that's preposterous," he quipped.
Zell stressed the importance of transparency and noted that it has been a major reason for the success of the industry.
"If you go off the straight and narrow, you'll tarnish our industry," he warned. He also underscored the dangers of offloading weak assets into the market, recalling that this was something a number of private players tried in the 1980s.
"The Street has a long memory," he said. "If you have a problem, deal with it."
Touching on monetary policy, Zell said the short-term reaction to a likely rise in interest rates "may be appropriate." However, he also noted that the whole real estate industry would be "materially better off" if interest rates were higher. He explained that such a scenario would create a sense of urgency, adding that "we would be much better investors and operators" if there was a downside risk for failing to act.