Sam Zell says online real estate tech companies
need to get real
By Julie Clairmont
Inman News Features
Friday, October 27, 2000
SANTA CLARA, Calif.-Listening to Sam Zell
talk to an audience of real estate technology companies is similar to
listening to a mother scold her child not to fill up on too many sweets
Zell, chairman of Equity Office Properties and Equity Residential
Properties, spoke Friday at the Real Estate Connect conference here, and he
came to deliver a strong message.
Though well known as an early adopter of Internet technology, his message to
this audience was clearly aimed at tempering their enthusiasm for innovation
with a healthy dose of realism.
Part of the reason so many real estate-related dot coms are dropping like
flies is that they have been behaving like spoiled rich kids who didnít have
to earn their allowance, Zell said. Venture capitalists have contributed to
the problem as well, he said, by being too eager to jump on the dot com band
wagon, and not evaluating the companies they invested in more carefully.
Unrealistic expectations, valuations and rollout times are the common
mistakes being made by both the companies and their investors, he said.
"Way too much money has been allocated to these applications," he said
referring to the category of real estate technology services and products.
Comparing himself to the role of the child in the fable "The emperor has no
clothes," Zell pointed out that too many of these companies are focused so
much on the technology end of the business, that theyíve forgotten their end
user, as well as the importance of selling their applications to their
marketplace. The funding and the innovation, and not market demand drove the
growth of the industry, he added.
"Most of these companies are not even really companies, theyíre web-enabled
ideas," he said.
Zell also challenged the audience to think of their companies, whether they
provide wireless access to the MLS or a solution for electronic closing, as
serving the real estate industry--not the real estate industry itself.
The end result of all this innovation will be about "figuring out how to do
what weíre already doing in a more efficient and more user-friendly way,"
said Zell, who is also chairman of the board of the National Association of
Real Estate Investment Trusts.
"Right now, weíve got 500 companies chasing too few good ideas," said Zell,
who also lectures on technology, and first began making millions during the
1970s by buying distressed properties at fire sale prices.
Real estate tech companies are also too focused on "the vehicle" such as
writing code, and also on scale, when they should be focused on analyzing
the valuation of the applications.
Consolidation will likely be the nature of the future, Zell also theorized.
But it wonít be the same as when one drugstore chain buys another, but more
an equation of "one half plus one half equals a whole," he said.
Zell also agreed with the many analysts who are predicting the economy will
soon experience a major slowdown if not a full-blown recession, due in part
to what has been going on in the Silicon Valley.
While most of the audience at the conference seemed to applaud, or at least
be amused by Zellís tempered outlook, some took exception to it.
After the talk was through and the floor opened up for questions,
Myers Mermel, CEO of Tenantwise.com, accused
Zell of being part of the problem with the dot.com economy. Mermel said
Zellís companies were afraid to make decisions about which the technology
services they use in their buildings.
"Youíve abandoned the vision you used to stand for," said Mermel.
"Not at all," replied Zell. "Iím just trying to be a beacon of light in a
sea of mental masturbation.
Copyright 2000 Inman News Features