Faithful Followers Bank on Bill Sanders’ Choices
After finishing a book on investing legend Warren Buffett one Sunday last fall, Dean Jernigan knew there was just one person with the deep pockets and smarts to help his small, self-storage property company expand.
Not Buffett. Bill Sanders.
Who? If you haven’t heard of Sanders, it’s probably because he wants it that way. To those in the business, though, the 54-year-old investor is to real estate what Buffett is to the stock market.
“If there was one investor I would call, it wouldn’t be Buffet,” Jernigan said, “it would be Sanders.”
With the book on Buffet finished, Jernigan, chairman and chief executive of Storage USA Inc. in Columbia, Md., got in touch with Sanders. Three months later, he sold Sanders a 28% stake in his company for $220 million.
In the six years since starting Security Capital Group Inc., Sanders has amassed a $5-billion real estate portfolio and put together from scratch two of the nation’s biggest apartment and industrial-property companies.
Like Buffett, he’s built a faithful following, and news that he’s taken a stake in a company can send its stock soaring.
Storage USA’s shares, for example, surged 2 points to 33 3/4 on March 1, the day the news was announced.
It’s the same with CarrAmerica Realty Corp. Sanders invested $250 million in the Washington-based office developer last November in return for a 39% stake. Carr’s stock is up 26% since then, almost double the gain in the Standard & Poor’s 500 Index.
“Bill Sanders has tremendous vision,” said Howard Seaman, head of independent real estate securities research firm Pharus Realty Investments of New York. “He spots trends three to five years ahead of everyone else.”
In a business known for flamboyance, unbridled egos and shameless self-promotion, the Cornell University graduate is an exception.
Little has been written about Sanders and he almost never grants interviews. But people familiar with his organization paint a picture of a workaholic, not afraid to interrupt an employee’s Saturday night dinner at home with a phone call to discuss business.
A spokesman declined to provide information about Security Capital Group or Sanders, and Sanders declined requests for interviews.
He “likes to keep things close to the vest,” the spokesman said.
Besides Storage USA and Carr, Sanders’ holdings include controlling stakes in industrial property owner Security Capital Industrial Trust of Denver, apartment company Security Capital Pacific Trust of El Paso, Texas, and Security Capital Atlantic, an owner of apartments in the southeastern U.S. An affiliate manages the three Security Capital companies.
Since founding Security Capital Group in 1990, Sanders has built a huge central database of economic and real estate information that any of the companies he owns stakes in can tap, a first in the industry. Carr and Storage USA are using the database to pick new acquisitions.
He also formed a New York-based division that helps these companies raise money directly from large investors without the help of Wall Street--another first. That cuts costs and gives Sanders-backed companies cheaper money to use in bidding for properties.
“He’s building an empire by offering one-stop shopping for institutional investors,” said Sam Lieber, manager of the Evergreen Global Real Estate Equity mutual fund with holdings in some of same companies as Sanders.
In 1968, Sanders founded Chicago-based LaSalle Partners, building it into one of the largest international real estate services firms, managing and investing in large office buildings and other commercial real estate for clients such as Ford Motor Co. and Coca-Cola Co.
In 1990, he sold his stake in LaSalle and moved to Santa Fe, N.M., where he formed the company that would become Security Capital Group.
He raised $250 million from wealthy individuals and pension funds, selling them on the idea that he could scoop up quality properties on the cheap. Then he’d bundle them together as real estate investments trusts, or REITs, put in talented managers and make a killing selling stakes to the public once the market recovered.
Sanders’ first move was in March 1991, when he took a 21% stake in Property Trust of America, later renamed Security Capital Pacific.
Under Sanders, the company grew rapidly to a market value of $1.62 billion from just $35 million. Sanders’ stake is about 38%, worth $620 million. Since then, the stock has averaged a return of 28% a year, double the 14% of the Standard & Poor’s 500 Index.
Both of Sanders public REITs have debt that represent only about 25% of their market capitalization, well below industry average of about 40%.
Yet, Sanders must navigate a host of obstacles that stem from rapid expansion, real estate experts say. Details can get overlooked.
And it remains to be seen whether Sanders’ success in apartment and industrial properties carries over into the office and self-storage markets, his latest ventures.
