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David Neithercut is the President and Chief Executive Officer and a member of the Board of Trustees of Equity Residential (NYSE:EQR). Mr. Neithercut has been Equity’s President since May 2005 and became Chief Executive Officer and a trustee of the company in January 2006.
Mr. Neithercut joined Equity Residential in 1995 as the company’s Chief Financial Officer. Prior to joining Equity Residential, Mr. Neithercut was Senior Vice President of Finance for Equity Group Investments, an affiliate of Equity Residential’ s predecessor company.
Mr. Neithercut holds a B.A. from St. Lawrence University and an M.B.A. from the Columbia University Graduate School of Business.
Mr. Neithercut is a member of the National Association of Real Estate Investment Trusts (NAREIT) of which he served as Chairman in 2015. He also serves on the Policy Advisory Board of the Joint Center for Housing Studies at Harvard University and the MBA Real Estate Program Advisory Board at Columbia University.
By Sam Fenwick ’18
What first attracted you to real estate?
I have to admit that I had no idea what I wanted to do when I first began at Columbia. My father had a few rental properties where I had grown up in Michigan and those were of interest to me, but I had never considered real estate as a career path.
One of the strengths of Columbia Business School, is the caliber of professionals from every industry who come to speak on campus on a daily basis and I made sure to take advantage of this. I went to nearly every one of these events and I simply found myself drawn to the real estate professionals. I loved hearing about the projects that they were working on, the equity and debt investments that they were making, and the development projects that they had under construction. I also was attracted to the physical nature of the business, which was in stark contrast to the securities industry that many of my classmates were focused on.
What has been your proudest achievement during your tenure as CEO of Equity Residential?
I’m really proud of the team that we’ve built. There’s no question that the leadership that we have is looked upon by their peers as among the best in the industry. Our CFO, COO, and CIO are all widely recognized as top professionals within all of commercial real estate.
I’m also very proud of our culture. We have cross functional teams that work extremely well together. It’s impossible not to have silos to some extent in a company of our size, but we’ve done an excellent job in minimizing them. Really, what we’ve tried very hard to do is to maintain the positive, honest culture from Sam Zell’s Equity Group. We’ve tried to maintain an open-door environment that is highly collaborative. We have the “10 Ways to be a Winner,” which is really the foundation of our culture. These principles define how we expect people to act. We want our employees to see the glass half full, to enjoy the ride, and to share the spotlight, to provide a few examples. Embracing these 10 principles is critical to succeeding at EQR.
The shift to smaller apartments or micro-units, seems to be gaining momentum. What are your thoughts on this trend and is EQR doing anything to position itself in response to it?
Almost, by definition, due to our focus on high density urban markets, our unit sizes have gotten smaller over the years. In fact, the vast majority of our portfolio consists of studios and one-bedroom apartments. In terms of micro units, we’ve acquired a couple of properties, one in San Francisco and one in Seattle that have micro units. They remain very well occupied, but they also have a significant amount of turnover. We see micro units as a part of our portfolio, but we don’t see them as a growing share of our portfolio. We do believe that micro units make a lot of sense in certain markets, but they’re not a major focus for us currently.
Outside of the six coastal gateway cities that you are currently in, do you see EQR entering any new markets in the near future? What are the biggest factors that you consider when contemplating which markets to be in?
It wasn’t terribly long ago that we were in 50 markets. Where we are today,--high density, walkable gateway markets-- was a very deliberate and strategic shift for the company. There’s a few reasons for this. One, we thought we would realize higher total rates of return by investing in these coastal markets where multifamily barriers to entry are quite high. Second, and this is the single most important metric that we look at, is single family home affordability. Outside of these six markets, single family homes, as a multiple of income, are very inexpensive.
We do an exercise on an annual basis where we look at the top 35 markets in the US by population. And while many of them screen extremely well on the demand side with great population growth, a highly educated workforce, and significant wage growth, the fact remains that single family housing near the city center is affordable. This is a major red light for us. Austin, Portland, and Minneapolis are all great cities that possess significant demand drivers, but we view the affordability of homes in these locations as a major impediment to significant long term rent growth.
EQR has made minimal development starts in both 2016 and 2017, are you planning for more of the same in 2018?
In ’14 and ’15 we averaged $1bn of development at attractive construction costs on land that we acquired at a low basis coming out of the recession. Since that time, construction costs have risen 5-8% per year, depending on the market, and rent growth has slowed. During those years we really worked our way through our existing land inventory and we have not replenished it largely due to pricing and compressed yields.
We are currently faced with rising construction costs, slowing rental growth, and yield compression, and we aren’t quite sure whether the risk of development is worth it given where yields are today. In many markets where we operate there is a lot of supply being built by others. We think we may have an opportunity down the road to buy some of that product at prices that might be at or less than current replacement cost with the added benefit of us not having to take development, construction and lease-up risk.
All that being said, in 2018 we do expect to start a major development in Boston’s West End neighborhood on land that we’ve owned for quite some time. This project will be New England’s tallest residential tower and we are extremely excited about its prospects.
Looking back at your time at Columbia Business School, what advice do you have for current CBS students pursuing a career in Real Estate?
I would tell them to not go too narrow too early in your career unless you are certain that you love a particular space. The opportunity to look at a lot of different deals, with a lot of different sponsors, across numerous geographies is invaluable. When I graduated from Columbia, I worked for a bank in Chicago where I worked on single family home developments, syndications, multifamily acquisitions, office re-developments. You name the asset class and the business plan, and I worked on it. I was exposed to a myriad of markets, deals, people, and product types, and that provided a great foundation as I went forward with my career. I was out of school for eight years before I began to focus on multifamily assets while with Zell’s Equity Group.
Do you have any non-work activities, anything from exercise, to reading a certain number of hours per day, to meditation, that you find make you a better CEO and colleague?
My answer to this question is much different now that my children are adults. It’s tough to find balance, but you do need to create it to the greatest extent possible. Monday through Friday, truthfully, there’s not a lot. I do workout every morning at 5:15 AM. I find that exercise gives me the stamina to get through the day. I don’t fade at 2 or 3 PM like I would if I didn’t get my motor running in the morning. I’m fortunately able to stay focused until I head home each night.
Weekends are where I try to create the balance in my life. I make sure that I find time to recreate and to spend time with my wife. I love to be active and I enjoy cycling, sailing, golfing, and skiing. I always find that when I leave Chicago for the weekend I’m much better at being able to keep my mind off work.
My kids are 30 and 32, but when they were younger, I coached both of them in youth sports, mostly soccer and hockey, in the fall, winter, and spring. I would leave every Thursday on the 3:30 PM train and spend the entirety of those evenings coaching their practices in addition to their games throughout the weekend.
How have mentors played a role in your career? What’s the best piece of advice that you’ve received from a mentor?
I have had several mentors throughout my career and I am grateful to these people for the interest they showed in me and for the guidance they have provided me.
The best piece of advice that I’ve ever received was given to me just after it was announced that I was going to take over as the CEO of Equity Residential. I was told to trust myself and to have confidence in the fact that while I wasn’t going to make every decision correctly, that I’d make more correct decisions than the next person. I was also told that no matter what happens to keep moving forward. That advice gave me the confidence to trust my judgement and instincts and helped me find my bearings in the early days of a demanding new position.
What do you like to do when you’re not working?
Outside of the activities that we already discussed, on the weekends when my wife and I are in Chicago, I enjoy cooking. I’m not very good at it, but I find it relaxing and my wife appreciates it. I like fussing around the kitchen on a snowy Chicago afternoon with the football game on.
Sam Fenwick ’18 graduated from The University of Texas at Austin with a BA and MPA in Accounting. After graduating, he worked in investment banking at BMO Capital Markets. Sam then spent four years as an Associate with Three Rivers, an oil-and-gas portfolio company of Riverstone Holdings. As a member of the acquisitions team, he helped to source deals, develop investment theses, and lead acquisition presentations to management on total closings in excess of $400 million. This past summer he interned with the investments team at CIM.