- 8th May 2020
- Posted by: Hakeem
- Category: Finance & accounting
- ‘Nobody is going to come back at 100%,’ developer Caruso says
- Convincing staff to return may be tough, says SAS’s Goodnight
Empty shopping malls in California and idled oil fields in Texas paint a dire picture for the American economy.
The reality is more complex, as evidenced by the closely held firms that will play a decisive role in dictating the size and timing of any recovery.
Bloomberg interviewed four billionaire owners of family-owned companies in real estate, oil, media and technology about their experiences during the pandemic and how they’re positioning their firms for the coming months. Here’s what they had to say:
The Retail Pioneer
Rick Caruso spent an afternoon late last month visiting three of his high-end retail properties in Southern California. Walking the largely deserted streets was a surreal experience for the Los Angeles-based developer, whose signature outdoor mall, the Grove, attracted more visitors than Disneyland before the coronavirus crisis.
Photographer: Patrick T. Fallon/Bloomberg
Early in the year, closely held Caruso Affiliated — whose net operating income has compounded at an annual average of almost 20% over the past three decades — was exceeding its 2020 performance targets, he said. Then things ground to a halt in March.
“This is a survival-mode exercise,” Caruso, 61, said in a phone interview. “It’s a different mindset that I’ve had to to learn how to change into. It’s not how you grow the business. It’s how you survive and then recover.”
He has deferred rents for smaller tenants and said he now spends about half his time working to navigate the current crisis and ensure the company ends the year with enough available capital to execute on growth opportunities. He spends the rest of his time strategizing with his team about how to reposition the business for a change in consumer behavior and calling other chief executive officers to compare notes.
“There’s no playbook,” said Caruso, who’s chairman of the University of Southern California’s board of trustees and a former Los Angeles police commissioner. “So you’ve got to run on your best judgment, your gut.”
Retail may be in the doldrums, but Caruso’s confident his particular offering — built around plentiful outdoor spaces and high-end boutiques — will continue to thrive.
“Nobody is going to come back at 100% of what they were doing in revenue before it stopped,” he said. “You’re going to see a number of bankruptcies also. But do I think outdoor brick-and-mortar retail, street-front retail, is going to survive and then eventually thrive? Absolutely.”
The crisis has also underscored the benefit of keeping his firm private and conservatively leveraged.
“You look at the publicly traded real estate companies and they have just gotten destroyed in the market,” Caruso said. “We can make decisions in a split second and in these kinds of times, where you’ve got a crisis going on, we want the ability to do that.”
Post-pandemic, he’s expecting demand to soar for developments offering outdoor space and intends to push ahead with planned projects, though at a slower pace.
“We’re going to be in a very good place because people are going to gravitate to places where they feel safe, that are clean and they can see the sunlight and there’s fresh air,” he said. “It’s much more complicated reopening and rebuilding your business for indoor malls.”
The Oil Magnate
Russell Gordy is one of America’s largest landowners, with 239,000 acres of pristine ranchland throughout the Western U.S. These days though, all of his time and attention are focused on his home state of Texas, which is in an unprecedented crisis. At fault: the twin calamities of coronavirus and depressed oil prices, the source of Gordy’s fortune.
Gordy, 69, who owns wells, has worked in the Texas oil patch for 47 years and said he’s never seen it so grim.
“I think I’m going to be shutting down all my production,” he said in a phone interview late last month. “Forget about getting a return on my investment, that’s gone. I can’t even pay the operating costs.”
While the price war between Russia and Saudi Arabia, which earlier this year sent a tidal wave of oil spilling into global markets, has contributed to the collapse, Gordy says the pandemic is the real catastrophe.
“I don’t see an end to this — this filling up of the world’s inventories,” he said. “There’s no place to put it.”
And just as the U.S. is swimming in oil, there’s “no demand. It’s down 30 to 40%. And as long as we stay a closed country, it’s going to stay that way.”
All the excess supply means Gordy actually had to pay people to take his oil. If he were younger, he said he’d probably take advantage of the crisis by buying assets on the cheap, as he did during the 1980s glut. He said he’s better positioned than most, with no debt. But at this stage in his career, he sees little point.
“Fossil fuels aren’t the wave of the future. It’s hard to get geared-up to spend money even if there are bargains out there,” he said. “I think we’ve seen the peak of what we’ll ever see in pricing.”
Gordy acknowledges he’s fortunate. His family is healthy, and he believes America’s ingenuity will lead to an eventual recovery. But “if I’d had a crystal ball, I never would have bought a well,” he said. “I just would have played the futures exchange.”
The Media Mogul
Rocco Commisso got an early warning about the potential impact of coronavirus from the soccer team he owns, ACF Fiorentina. The club is located in one of the regions of Italy hit hardest by the virus and the outbreak there prompted the billionaire to prepare his U.S. cable operator, Mediacom Communications Corp., for lockdown.