You have had a front row seat as REITs have evolved from the family owned entrepreneurial entities they started as, to the professionally run corporate entities now included among the nation’s leading corporations. How have you seen REIT leadership and the roles and responsibilities of REIT CEOs evolve over the last decade?
Remember, I suffer from the view that the real REIT business began in 1992. So from my perspective, up until ’92–and even in the early parts of ’93 and ’94—REIT CEOs were nothing more than real estate guys with a title.

I REALLY BELIEVE THE NEXT GENERATION OF CEOS ARE GOING TO BE MUCH MORE PROFESSIONAL MANAGERS AND MUCH LESS ENTREPRENEURIAL DEVELOPERS.

As our industry became more transparent, larger, and more and more REITs went public, REIT CEOs took on all kinds of new responsibilities that they never had before. Whether it was dealing with ratings agencies and the analytical community, or understanding the need to provide leadership and define vision, these are all things that are normal, "non-real estate related CEO functions."

Looking out over the next 10 years, how do you think these roles are going to continue to evolve? And in what ways do you see the next generation of CEOs building on the industry you and your peers helped shape?
I’ve spoken on this quite often, and I really believe the next generation of CEOs are going to be much more professional managers and much less entrepreneurial developers. I think that’s the natural evolution that happens in any business that consolidates very rapidly and the founders are very powerful. As the founders move on, you develop real sophisticated professional management. Therefore, the next generation will probably not have the brick-and-mortar experience, but will probably be more financially driven.

You’ve also been quoted in the past as saying you expect more leadership from other industries to start entering the real estate industry. Do you still think that is likely to happen?
Without question.

Whether they are from another industry or make their way through a company’s ranks, what would you say are the most critical skills for this next generation of leaders to possess? What is something that they can’t learn in business school that would really serve them in running a successful public real estate company?
Well, the answer to this question could probably cover the entire interview, so I’m trying to answer it in a short version. Leadership is not taught; people are born with it. So the most critical skill is leadership.

I think from a substantive point of view, the number one skill is the ability to assess risk. There are lots of courses in business school that teach you how to assess risk, but the reality is that the undefinable term "judgment" is, in the end, what separates the men from the boys. Running a public real estate company is no different.

Shifting to some of the broader governance issues facing the industry, do you think the public battles that have happened over the past year (with Simon and Taubman, and the Post board issues), have had any impact on how either investors or analysts look at the REIT industry in terms of its governance practices?
I personally think these battles are terrific. They are all symptomatic of an industry that is still moving from private to public, and they all really manifest the deal you make with the devil when you go public. And the deal with the devil is that you have all kinds of new constituencies with all kinds of powers. If you want to be a public company and you want access to public capital, you have to act in accordance with those rules.

HAVING A CHAIRMAN NOT INVOLVED IN DAY-TO-DAY ACTIVITIES MEANS THERE’S AN OPPORTUNITY FOR PERSPECTIVE AND VISION THAT IS OFTEN OVERLOOKED WHEN YOU'VE GOT ONE GUY THAT DOES BOTH.

Right, and obviously one of those rules is transparency. Do you think, as a whole, the industry operates with the necessary level of transparency?
I think the industry operates at a very high level of transparency, and maybe even higher than most other industries.

There has been a growing sentiment regarding the need to separate the roles of the company chairman and chief executive officer. Do you feel this is an important issue?
As you know, we’ve done that in all of our companies, and I obviously think it’s a very good idea. From my own experience, whether it be Equity Office or any other company that I’m involved with, having a chairman not involved in day-to-day activities means there’s an opportunity for perspective and vision that is often overlooked when you’ve got one guy that does both.

Obtaining terrorism insurance legislation was a very important issue for the industry last year. As other issues have arisen, it has slipped off the front burner. Do you think that issue has been adequately resolved, or do you still see some lingering concerns?
I’m not overly confident that the issue has been resolved. I think there are a lot of open questions, and unfortunately we probably won’t know the answer to any of these situations until they are tested. I’m not wishing they be tested, although as a realist I think it’s likely that they will be. That is when we will find out more.

Do you think that the overall economy is on its way back?
I do, and I may be the only optimist in the entire industry. I see the economy improving and getting better. It’s slow. I don’t see another potential dip, and yes, in periods of recovery, the first phase of it you always continue to have job loss. This recovery is not dramatically different than others.

So we’re following the path to recovery right now?
I think so.

I CAN TELL YOU THAT NONE OF MY COMPANIES HAVE EVEN CONSIDERED THE POSSIBILITY OF CUTTING DIVIDENDS. WE’VE RUN OUR BUSINESSES TO MAKE SURE THAT THAT SORT OF CATASTROPHE IS NOT A POSSIBILITY.

And what about the real estate market in general?
Obviously with almost, but not quite, any exceptions, the real estate market is weak. The real estate market is reflecting the U.S. economy and its weakness. My answer to your previous question suggests that I think the real estate market is going to get better, slowly. And I do think we have bottomed out.

Which sectors do you see leading the way in the recovery?
Well, history says that apartments are always the first sector leading a recovery. I would not be surprised to see that again, except that this time around new apartment construction has continued, whereas new office construction has virtually stopped. So it will be interesting to see which one of those two sectors leads the way out.

A positive for the real estate industry during the broader market struggles has been an influx of new capital from investors that have looked at real estate as a safe haven. Do you foresee that a lot of that capital that came in is going to be lost now that the broader economy is recovering?
No, because I think that there’s a long-term shortage of streams of passive income. As such, what we’re seeing is just another reflection of that very same thing.

If you were sitting down with some of those investors new to the REIT industry, what would you tell them to expect over the next 12 months?
I would think that a total return in the 12 percent range is a very reasonable expectation, and a very comfortable, fair return in this environment.

If that could be guaranteed, I think we’d see a lot of new money coming in and many happy investors. Well, we are. Lots of new money keeps coming into the industry as we mentioned before. You can’t underestimate the impact of 600 investors attending NAREIT’s Institutional Investor Forum in N.Y. last June. That’s a record number on all fronts.

And you think the industry will be able to keep attracting new investors?
If we’re doing a good job, yes.

Now, a little while ago you called yourself an optimist, so I may know the answer to this question beforehand, but do you see real estate stocks continuing their track record of outperforming the broader market?
I can’t speak specifically to that. If I were really enthusiastic, I might suggest that a significant recovery in the broader market would certainly continue to help real estate stocks outperform. And I certainly think the real estate business will outperform over the next five years.

Some analysts have predicted that more real estate companies are going to have to cut their dividends. Will this be a widespread issue in the industry and is it something that is going to be a negative as a whole?
I can’t speak for any other company, but I can tell you that none of my companies have even considered the possibility of cutting dividends. We’ve run our businesses to make sure that that sort of catastrophe is not a possibility. I think that’s an opinion shared by most other executives that I’m aware of, and so I would expect very few additional cuts.

Also on the topic of dividends, REITs were largely unaffected by the provisions in the President’s tax cut. Now that the legislation has had time to take effect, do you anticipate any residual impact to REIT stocks?
Almost none. The S&P 500 today earns 1.75 percent. As of Aug. 29, the NAREIT Composite Index earns 6.4 percent.

Cutting the tax on dividends in half doesn’t make up for the fact that the REIT yield is three to four times greater than the S&P 500 average. So I think it will have no impact. The after-tax yield for the S&P 500 is 1.49 percent, while the after-tax yield for equity REITs is 4.45 percent. Therefore, the dividend yield for equity REITs is still three times greater than that of stocks on an after-tax basis.

Right, and also considering all the tax-exempt investors as well...Who are already there anyway.

Now that we have discussed some of the current issues facing REITs, let’s take a step back and look at how the industry developed. In your opinion, what are the most influential events in the evolution of the REIT industry?
Obviously the original creation of REITs in 1960. The second was the loosening of the passivity requirements in 1986. The third most significant event was probably the Kimco public offering in late 1991 that created the modern REIT era. And I think the next event would probably be the passage of TRS legislation. Those were the major events in the history of this industry.

Having built such a legacy in the real estate industry and also in the broader business world, is there one accomplishment in your career that stands out above the rest?
I’ve never really tried to think in that context. I take great pride in everything I do. The reason I come to work every day is because I love what I do, and I’m challenged. I hope I never can answer that question.

Seeing that you still love going to work everyday, do you anticipate a time when you’d be interested in stepping back from the real estate industry?
I can’t imagine.

Outside the business world, you have numerous interests including skiing and racquetball. But I know motorcycles are a major passion of yours. Are there any similarities between running a public company and being out on the open road on a motorcycle?
The beauty of being out on the open road is that the road is there. So therefore, the job as the rider is to follow the road. Oftentimes, running a public company is trying to figure out where the road is, and which road to take. Obviously there are lots of issues in riding that revolve around which road to take. At the same time, there’s an enormous love of freedom, there’s enormous excitement for speed and action. And I think running a public company has a lot of those characteristics attached to it.