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Willam Sanders: The Man Behind the Plan
Verde Group owner and Paso Del Norte Group founder—
Sanders made his fortune in Chicago where in 1968 he founded LaSalle
Partners, a real-estate advisory and asset management firm that catered
to institutional investors. In the 1980s, in the height of the real
estate boom, he sold his partnership stake for an estimated $64 million
to the Japanese firm of Dai-ichi Mutual Life Insurance Co. Critics have
charged over the years that he sensed the market was about to collapse
and the he left the Japanese holding the bag. He launched the Santa
Fe-based Security Capital Group in 1991. He cashed out again in 2002 to
the General Electric Capital Group. The deal was estimated to be more
than $5.4 billion. In December 2003, Sanders formed the Verde Group, a
real estate company that invests in binational projects along the
entire U.S.-Mexico border, including maquiladora manufacturing plants
in Mexico. That's also the same year he co-founded the Paso Del Norte Group,
a group of binational developers, bankers, business executives, media
owners and politicians from El Paso, Juárez and New Mexico. The
Verde Group bought 21,000 acres from Paseo Del Norte Ltd, owned by
Santa Fe developer Chris Lyons. The purchase included all of the
Santa Teresa Real Estate Development Corp.’s industrial parks. It
also purchased billions of gallons worth of water rights (enough to supply to city of Las Cruces) to the land out of the U.S. Bankruptcy
court through a deal that has been criticized by environmental groups
for its complete lack of public transparency.
Sanders: A man who raises expectations then leaves others behind holding the bag
“This rail bypass will benefit mostly Ferromex and UP. All other
developers of land will also benefit, among them, Sanders and Vallina,
or whomever they may sell their land to, if that would be the case,
which is not far out in the case of Sanders, since historically his
business model in land speculation has been to raise the expectations
of his projects and then to sell them to third parties before
conclusion, sometimes, even before starting them."
--Javier Ortiz, binational development consultant for Sunland Park
A REIT MOGUL IN A FINE MESS: Bill Sanders' real estate colossus is suddenly vulnerable
By Kathleen Morris --Business Week, March 1, 1999
To William D. Sanders, home is a parched, windswept New Mexico ranch
that extends over 125 square miles beneath the Sangre de Cristo
mountains -- a world away from the clamor of the real estate industry,
which in some ways he has dominated for the past 28 years. The
white-haired, denim-clad entrepreneur is patrolling his rugged,
high-desert spread from the front seat of a white Ford pickup.
''What is great about this place,'' says the Texas native, his drawl
erased by decades spent traveling between cities such as Chicago and
London,where he erected companies, ''is that you can think.''
These days Bill Sanders has plenty to think about. His $ 20 billion
real estate empire, the biggest and most complex in the country, is in
serious trouble. There's even a risk it might be dismembered. That would
be an enormous comedown for a man who is widely regarded in the
industry as the foremost visionary behind the decade's boom in real
estate investment trusts. ''He is the senior statesman of our
industry,'' says Mortimer Zuckerman, CEO of office REIT Boston
Properties. Beyond the clubby real estateworld, though, the reclusive
Sanders is little known. His extensive talk with BUSINESS WEEK over
several months was the first in years. Sanders' longtime goal has been
to extend his reach across the globe --building a multifaceted family
of giant real estate operating companies, supported by a services group,
real estate investment banking, consulting, and research. It also seeks
to become the Fidelity of the industry, rolling out a range of real
estate investment vehicles and mutual funds. ''There is no analogy for
this,'' says Craig Leupold of Green Street Advisors. ''He wants to be
the one-stop shop for real estate investors worldwide.'' But over the
past year, the foundation of his colossal empire has suffered a fierce
downdraft, because of a bear market that has damaged most real estate
equities. The major reason: With real estate at the top of the cycle,
investors fear commercial real estate is headed south. The
keiretsu-like character of Sanders' operation has severely compounded
the problem. Cash-flow growth at Security Capital Group Inc.,
the hub that controls 17 separate companies, which in turn own
everything from luxury hotels to parking garages, nose dived to 7% from
20% in 1997. ''CAN'T BE WRONG.'' That has pushed Security Capital's
stock down to 60% below the price it fetched at its 1997 initial public
offeringand 40% below its own breakup value. If that price doesn't
rise, analysts believe shareholders could demand, and get, a partial
liquidation. Sanders admits that for his growth strategy to work, ''we
need to trade at least net asset value or a slight premium.'' Some
months back, at his small headquarters off the historic plaza in
Santa Fe, Sanders walks into a meeting room decorated with centuries-old
Navajo blankets. He's quick to write off the under performance as a
temporary phenomenon. ''This is not a collection of assets -- we are
building real companies,'' he insists in an emphatic staccato tone,
while his two top officers begin a detailed slide show explaining how
Security Capital is creating a variety of new enterprises in sectors
ranging from assisted-living centers to neighborhood malls. ''We can't
be wrong,'' says Sanders, staring intently through horn-rimmed frames.
''It just makes too much sense.''
In an industry populated with brash dealmakers, Sanders is an oddity.
What excites him are not deals, but spotting trends and inefficiencies,
and plotting elaborate strategies to exploit them. For most of his
career, he has been very right. At the age of 28, he founded Chicago's
La Salle Partners, building it into one of the country's preeminent
real estate-advisory and asset-management firms. Then in 1989, at the
peak of the last real estate boom, he sold out,convinced there had to
be a fundamental shift in real estate from private to public ownership.
Since 1991, when Sanders started over in Santa Fe, the public real
estate market has exploded in size from $ 9 billion to $ 257 billion.
His first investment, a $ 30 million REIT called Property Trust of
America, has evolved into Archstone Communities, a national apartment
giant with $ 5 billion in assets. In 1993, he launched Prologis, a
warehouse REIT. It now has $ 4.3 billion in assets and is by far the
biggest such entity in the U.S. NEW COMPLAINTS. Unfortunately,
investors these days hate real estate. Despite the solid cash flow of
REITs, the REIT index fell by 23% in 1998, not including dividends, and
has gone nowhere since. This has slowed the growth of all REITs,which
are required by law to pay out most of their earnings in dividends and
frequently need to raise money to fund growth.
But Security Capital's structure exacerbates the problem. Security
Capital Group itself is not a REIT but a leveraged play on the growth
of the public real estate market. Security Capital owns no property
directly. Through its offspring, though, it has a stake in every major
sector of the property market. Not only are the dividend and
asset-value growth of those underlying investors now slowing but the
company is unable to take public any of the new companies it has been
incubating. Nor can it raise money for its mutual-fund business or earn
fee income from its offspring by raising money for them.
As Security Capital's once-stellar returns have evaporated, investors
have started complaining about another issue they used to gloss over.
Security Capital is a complex animal, and its offspring have fairly
incestuous relationships. Last summer's marriage of Security Capital Atlantic and
Security Capital Pacific to form the newly named Archstone, in
particular, was not well received. At the time, Pacific was soaring;
Atlantic wasn't. But both companies were valued equally. Pacific
shareholders griped that Sanders bailed out a loser with a winner at
their expense.
Sanders, who defends the deal, claims he had nothing to do with the
pricing because it was decided by the individual boards. But he is
rushing to improve his companies' communications, which he grades an
F-. The top managers at Security Capital admit they have been so
focused on executing their master plan and not giving away secrets that
they have not done an adequate job explaining how the company works.
Not only has the top team at Security Capital evaded the press but its
members rarely address real estate conferences. Worst of all, the
company's disclosure has been weak.
There are signs Sanders may be getting ready to make more dramatic
moves, such as selling one of his companies to buy back some depressed
shares. But the question is whether this will come soon enough to
reassure investors. In 1997, Security Capital was sold to the public as
a growth stock. With several of the core strategies behind that growth
now disabled, the company looks like a closed-end real estate mutual
fund with a very high cost structure. Closed-end funds typically trade
at big discounts. Investors may not have the patience to wait for an
upturn. ''His priority absolutely has to be closing the gap between the
market value and the asset value of the company,'' says Eric I. Hemel,
an analyst at Merrill Lynch & Co.
If that gap is not closed over the next 6 to 12 months, Sanders could
be forced to take more dire steps. More than 70% of Security Capital's
assets, and 50% of SC US Realty's assets are public companies. That
means it is very easy for shareholders to add up the sum of the parts
and conclude the best way to get their money back would be to liquidate
the company. One thing that should not be underestimated, however, is
Sanders' dedication to making this company work. As his pickup travels
the dirt tracks of his ranch, he points out the former house of a
grandson of a homesteader named Doffett who owned the 1,000 acres. ''I
schmoozed with him for five years,'' Sanders says, ''helped him bring
in his cattle on weekends. He didn't sell until I found him a
replacement ranch halfway to Odessa, Tex.'' It took 81 transactions
over 20 years to patch together the spread. Why did it have to be this
big? ''It was my mission,'' he says simply.
But life may be simpler on the range. For now, Sanders' current dream seems as dry as his parched spread.
Sanders' REIT Empire (2000)
SECURITY CAPITAL GROUP Parent holding company's services: venture capital,investment banking, asset-management research
REAL ESTATE INVESTMENT TRUSTS
PROLOGIS TRUST Largest U.S. warehouse REIT.
ARCHSTONE COMMUNITIES TRUST Second-largest U.S. apartment REIT.
SC U.S. REALTY (a public company). Owns CarrAmerica, an office giant; Storage
USA, a self-storage REIT; and five other REITs.
REAL ESTATE COMPANIES
HOMESTEAD VILLAGE Large national extended-stay lodging company.
BELMONTCORP Assisted-living chain.
EUROPEAN REALTY Owns controlling stakes in five small European real estatecompanies.
STRATEGIC HOTEL CAPITAL Luxury hotel group.
INVESTMENT FUNDS
SC PREFERRED GROWTH Opportunity fund that invests in preferred stocks of publiccompanies.
SC US REAL ESTATE SHARES and SC EUROPEAN REAL ESTATE SHARES
Mutual funds.
Major properties DATA: SECURITY CAPITAL GROUP
"Developing the Border" by Pulitzer Prize winner Eileen Welsome
(Excerpt)
...
Sanders concluded the entire U.S.-Mexico border -- from San
Diego/Tijuana to Brownsville/Matamoros – was a sleeper. In 2003,
he formed Verde Group, Inc. to take advantage of this opportunity.
“Whether the country likes it or not, the manufacturing platform
in the U.S. is going to be on the Mexican border, and that’s
where the growth is going to take place,” Sanders told a magazine
published by his alma mater, Cornell University.
The Verde Group, which uses sophisticated research to spot trends,
believes that multinational companies, many of which had left North
America in search of ever-cheaper labor, were discovering that getting
products to U.S. cities was costing more in the post-9-11 world. Some
of those companies would be coming back. When they arrived, Verde would
be there to welcome them into a new world that was not quite the United
States and not quite Mexico, but a savvy hybrid that that could take
advantage of the rules – and lack of rules – in both
countries.
Sanders put some heavy hitters on Verde’s board, including Ray L.
Hunt, a Dallas billionaire with an estimated net worth of $2.5 billion
and former member of the board of directors of Halliburton; H. Laurence
Fuller, the former chairman of Amoco, and John P. Frazee Jr., former
president of Sprint.
Then Verde went on a buying spree. If the real estate firm’s
vision becomes a reality, vast stretches of seemingly empty desert
along both sides of the U.S.-Mexico border will some day be replaced
with bunker-style warehouses, housing subdivisions, and orderly
industrial parks, where dawn and dusk are no longer marked by the flash
of jack rabbits but by the fizz of underground sprinklers.
A trim man in his sixties, Sanders cultivates an air of mystique by
rarely giving interviews or making public appearances -- except
when he wants to make a splashy announcement or needs to shore up
investor confidence in his companies. In the spring of 2006, Sanders
stepped briefly into the limelight when he and a group of city
officials unveiled an ambitious redevelopment plan for downtown El
Paso.
Funded with both public and private money, the plan was developed
behind closed doors and targets an area of downtown El Paso between
Interstate 10 and the international border. Under the plan, the heart
of El Paso’s Segundo Barrio, which for more than one hundred
years has been the “Ellis Island” of Mexicans emigrating to
the United States, would be replaced with upscale lofts, condos, shops,
a mercado, and possibly even several big box stores. Sanders said
redevelopment of El Paso would be a “waste of time”
-- one of his favorite phrases -- unless it were tied to regional
development.
Like the dot.com entrepreneurs, Sanders has managed to create value in
his products that actually exceed their net worth by building
expectations among investors. “And he is usually the first one to
cash in on the additional value he creates,” said one El Paso
businessman. Sanders builds complex rings of business entities, nested
inside each other like Russian dolls, which give him flexibility, as
well as protection from legal and financial liability. Verde is no
exception. Records show that 23 Verde entities – ranging from
Verde Group to Verde Corporate Realty Services to Verde Group Inc. were
created between 2003 and 2005.
Click here for full article
“The overall feeling I get when I hear this man’s name is dread”
—Carolyn Drapes, Former Sanders employee
It is scary what one man thinks he can do (by way of enticing
investors) to historical areas. The entire heart and soul of the
Segundo Barrio and the Downtown area is in danger of becoming another
mini-mall for the rich. He will use the people of the Segundo as so
many trinkets. The overriding feeling I have when I hear this man's
name is dread. The dread comes from my previous employment of William
Sanders's various REITs. From late 1997 through 2001, I was a web
designer and worked for several of his companies including ProLogis, Archstone, Homestead, SC-US Realty, CWS Communities, and of course,
Security Capital. In addition to ethical problems with Sanders, I also
have problems with Beto O'Rourke's connections to Sanders. Although
I've known Beto O'Rourke on an email basis for many years (since he
first began the original Stanton Street website and before his father
died).
I was shocked to see just how money follows money. Yes, Sanders is now
his father-in-law, and it has been quietly published in several
articles about this new plan. But what amazes me is that no one has come out to
question why Beto does not recuse himself from the vote for
redevelopment. To me, he should be able to talk all he wants, try to
persuade those he feels will vote for the plan, but in the end, if any
vote comes before city council, he should not cast a vote. In addition,
this plan of Sanders is not new. As I said earlier, I worked for his
company, Security Capital (and its subsidiaries) for just several
years. I've found that if you want to understand more about this
project, look to his blueprint for his former real estate investment
company (REIT) Urban Growth Property Trust. In 2002, another of his
companies owned 98.8% of Urban Growth and U.S. Realty. All are defunct now.
What follows is a page from their 2001 website for Urban Growth
PropertyTrust, a press release for an urban renewal project in
Philadelphia, and an Urban Growth Property Trust press release
announcing its acquisition of 11 properties. Note that the release came
out of Europe. The core of Urban Growth was that it was a European
corporation that was investing United States real estate. It would be
interesting to see how this project fares today.
The thing to remember about Sanders is that his companies are all
tightly tied together rental properties for multi-family complexes,
rental properties for retail, at times, hotels, manufactured housing
communities, and of course, the almighty parking garage. Check to see
just what kind of development Verde Realty is up to. Currently, he is
planning a community for Santa Teresa. In other locations, particularly
Arizona, I've heard that communities are now being developed as
all-encompassing gateds with the residences behind gates, but also
their schools, shopping, churches, and parks. What I cannot find is
proof that he will develop these kinds of communities, although I have
heard rumors that it is happening now. Lastly, Urban Growth Property
Trust eventually was combined with Interpark, which is only interested
in developing parking facilities and reducing employees. just wanted to
unload what I have been able to gather and also express problems I have
with the whole Sanders-O'Rourke dynamic.
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