Pollack Standing Pat, Waiting Out Overpriced Land Market
Date: 03-23-2007
Phoenix Business Journal
In Arizona's real estate market, many investors have one thing in mind when it comes to land: buy, buy, buy.
Michael Pollack, president and chief executive of Mesa-based Michael A. Pollack Real Estate Investments, is not one of those investors.
For the past 18 months, Pollack, whose 4 million-square-foot portfolio -- everything from office buildings to shopping centers -- spans California and Arizona, has put a hold on acquiring new land, citing "aggressive" prices in the market driven by a glut of capital. Instead, he's turned his attention for the past year and a half away from acquiring land and toward developing property he already owns, many parcels of which are within Tempe and Chandler's horseshoe of the Price, Santan and Superstition freeways.
Pollack is a 30-year real estate veteran who's worked in nearly every area of the industry -- including commercial, hotels, and multi-family and single-family housing -- from Louisiana to California. He also is well-known for his quick, sometimes all-cash property purchases.
Recently, Pollack spoke with The Business Journal about his current hold on acquisitions, his forecast for the Phoenix real estate market and his other business practices.
Are the majority of people in the buying mode right now, or would you say they have adopted your line of thinking? "The majority of people are in a buying mode right now, and I think people have been very aggressive over the past year and a half.
"I'm not sure if people are quite as aggressive today as they were a year ago. (We're seeing) a little impasse between sellers and buyers with the sellers wanting a little more than the buyers are willing to pay.
During the past 18 months, people made some good buys, and people made some horrific, terrible buys. In time, the market will sort out who the winners and the losers are."
Would you say the majority of buyers will turn out to be winners or losers? "I think it might be fairly even between winners and losers. The key is going to be those who have deep pockets and are well financed. Those that are highly leveraged will have a much more difficult time, and interest rates will be a factor in who ultimately will win and who will lose.
"Someone who has fixed interest rates and is not overly leveraged on well-positioned properties and has deep pockets, we can peg them as a winner right now. People with variable-interest rate debt (and) who have high leverage, those are probably the ones who will have the most difficult time weathering any storm."
To what do you attribute the overpricing of real estate parcels? "Not every property is overpriced, but I think there is a lot of overpriced property. What's driving the market is the overabundance of money available. People are nervous about the stock market. They believe real estate is the safe haven.
"There is an overabundance of capital, of cash available; a lot (of it is) in the hands of people who are wealthy but don't necessarily understand real estate.
"Here's what ultimately will tell us where the value is going to be: It's really going to be based on returns. Right now, people are willing to invest in lower returns, when the interest rates (of money invested in bonds and the stock market) go back up, both for long-term money and short-term money, people will expect a higher turn. If they can't get it in real estate, they will look somewhere else.
"When government (bond) returns return to 8 percent, only a fool would continue to invest in property that is returning 6 percent."
When do you think you will you terminate your hold on acquisitions? "I think we should see some opportunities begin to avail themselves by the end of this year, beginning of next. We're always in an acquisition mode ... it's just that we have not seen opportunities that have made sense to us in the past 18 months."
Does your large portfolio allow you to temper what you see as the inflated market better than smaller companies by allowing you to stop acquiring land? "It affords us the ability to sit on the sidelines and wait on an opportunistic place. Unfortunately, for a lot of companies, they're dependent on making the next deal, (while) we're focused on maintaining our existing portfolio.
"Sometimes the best deal you do is the one you don't do. I've been doing it 30 years, and I try to pick my battles the same way I pick my projects."
On a different track, what is the benefit of all-cash property purchases? "The advantage is I can buy and close deals very quickly. I've bought deals, literally, in seven to 10 days, all cash. That's not normal. Because we are privately held, I don't have a board I have to talk to. We're a conservative company, but we're very aggressive as well. I'm very conservative until I see what I want, and then I get very aggressive."
Anything else? "The next few months should separate the veterans from the rookies. There's been a lot of people in the real estate business that have been luckier than they have been smart. If their luck holds out, then they'll be great.
"But I try not to put too much emphasis on luck. I think there's a happy medium someplace."
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