Thursday, September 20, 2007

Grave dancer knew when to step back

If you revisit the Blackstone – EOP deal today after the Housing market collapse, Sam Zell wouldn’t have timed his exit better.

In February, Zell sold his flagship Equity Office Properties (EOP) and its portfolio of 540 prime office buildings to the Blackstone Group for $39 billion. Large PE firms that benefited from absurd leverages, were offering premium prices to publicly held Real Estate firms. Later the subprime crisis followed and the resultant credit squeeze and risk aversion would never have allowed that kind of a deal to go ahead. In Zell’s own words “today, you would never be able to replicate the Blackstone deal”.

Interesting feature on the great mogul here.

Wharton Real Estate professor Peter Linneman notes that Zell is known by the nickname "the grave dancer." According to Zell, the term grew out of the headline of an article he wrote describing his strategy of profiting off distressed real estate following the inevitable bubbles of investment enthusiasm. Zell said the article shows how "I was dancing on the skeletons of other people's mistakes."

Zell, however, also pointed out that the last sentence of the article reads: "He who dances closest to the graves, always has to be careful he doesn't fall in."

Zell clearly knew when to step back. Does that leave Blackstone in the grave then? Stephen Schwarzman knew how to look for greater fools. He did the unthinkable – of taking a PE firm public - Blackstone went public in June…!

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