Jeffrey Towson is the former Head of Direct Investments for Middle East North Africa and Asia Pacific for Prince Waleed, nicknamed by Time Magazine as the “Arabian Warren Buffett”. He is the author of the global investing book “What Would Ben Graham Do Now?. His site is www.JeffreyTowson.com
Keren Blankfeld’s recent Forbes article chronicled the fascinating entry of real estate billionaire Sam Zell into Mexico and Brazil. True to character, he is cutting a wide and bold path into the emerging markets.
But Mr. Zell would be well advised to take a brief look at Prince Waleed – the world’s first and still most successful emerging market investor.
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Long before he became America’s largest foreign investor; the owner of Citi and Fairmont-Raffles; and the guy with an Airbus 380 as a private plane (it is still unclear whether or not it will contain a swimming pool), Waleed was a billionaire emerging markets real estate investor.
For example, Waleed has one real estate project that covers 9M sqm of land and contains a one-mile golden skyscraper. Another contains 14,000 homes and covers an area the size of Manhattan. And he now directly or indirectly owns over 200 hotels around the world. He, like the British Empire of old, has created an empire on which the sun never sets.
In my previous position as Waleed’s Head of Direct Investments for MENA and Asia Pacific, what continually shocked me was how easily he moved between geographies; operating agnostically between emerging vs. developed markets. He could look at Africa on Monday, Europe on Tuesday, China on Wednesday, and the US on Thursday (nobody works in the Middle East on Friday.)
So I suggest there are good lessons for Mr. Zell’s emerging markets’ ambitions to be found in Waleed’s history. My recommendations as to a few:
Lesson #1: Sometimes It’s About the Market – So Go Big
Zell’s focus on supply-demand fundamentals has naturally led him to look at Brazil, where there is growing demand fueled by a deep and rising middle class. Millions of Brazilians are buying their first homes and apartments. Zell’s focus on businesses that benefit from this macro-trend, such as retail, construction, and affordable housing companies, is both logical and pretty smart. In an attractive long-term market, you want to “go big and local”.
But where Zell targeted Brazil, Waleed targeted Africa. Not only does it have a similarly attractive macro-picture – an entire continent of growing demand – but it also suffers from widespread investor bias. International investors are scarce and prices are low. An attractive macro picture is even better when mispriced.
Waleed also didn’t limit his “go big and local” approach to just real estate. While his hotel investment group, Kingdom Hotel Investments, is buying and building hotels across Africa, his pan-Africa private equity firm, Kingdom Zephyr, is targeting the growth more broadly. In many emerging markets it’s easier to play across the board than in the West. Waleed’s lesson for Zell: go bigger in these cases.
Lesson #2: Sometimes It’s About the Deal – So Go Surgical
Prestigious foreign investors, such as Waleed and Zell, can find themselves in advantaged negotiating positions in many emerging markets. They have unique reputations. They can access foreign capital. They can access Western capabilities (brands, partners, technologies). This helps in Brazil but it can be ridiculously powerful in places like Mongolia or the Philippines.
In these locations, you don’t want to go after the entire market, but you definitely want to go after such highly advantaged deals. Buying cheap waterfront hotel properties in Beirut (i.e., Waleed) can be done with spectacular returns. Buying or building office towers on Century Avenue in Shanghai (i.e., Hines) lets you capture a unique asset. Buying the largest movie theater chain in Turkey (i.e., Tom Barrack) can be done quickly and profitably. Waleed’s lesson for Zell: sometimes it’s about the market. Sometimes it’s about the deal.
Lesson #3: A Foreigner and His Money Are Easily Parted
While reputation can be a strength in getting a deal done, it usually doesn’t protect your claim long-term. Getting in is easy. Holding on can be a problem. The emerging market landscape is littered with prestigious investors who made investments and then lost them (ask Rupert Murdoch about his China investments).
For this problem, Mr. Zell stresses the importance of a local partner. But Waleed relies more on control of foreign brands (i.e., Four Seasons), operating systems and other capabilities to strengthen his claim to the asset. Capabilities are much better protection in the long-term.
An additional caveat to Zell’s focus on getting a good local partner is that it is often tough to date the prettiest girl in school. Top local partners in emerging markets have too many suitors today. The lesson for Zell: Western capabilities will both better protect you and broaden your dating pool.
Lesson #4: Long-Term a Multi-Prong Approach Works Best
Waleed walks effortlessly between developed and developing markets – and it’s mostly the result of a multi-prong approach. “Going big and local” plus “going surgical when you’re strong” gives you a more powerful approach.
This is Waleed’s most important lesson for Mr. Zell. A multi-prong approach not only works best but also lets you go much bigger much faster. And really, why just be an emerging market investor when you can be a global tycoon?