‘Survival Mode’: How Billionaire Bosses Tackle the Pandemic
Four billionaires share their experiences during the pandemic and how they’re positioning their firms.
(Bloomberg) -- Empty shopping malls in California, idled oil fields in Texas and the highest unemployment rate since the Great Depression 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.
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.
Ahead of government guidance, he acquired masks and protective equipment for technicians and bought about 1,700 laptops so staff could work remotely. That has allowed the company -- whose data, video and phone services are deemed essential -- to keep functioning pretty much as usual.
Mediacom’s first-quarter revenue rose 3.9% to $518 million from a year earlier, while a measure of operating income increased 4.9% to $205 million.
The billionaire, who was born in Italy and grew up in the Bronx, owns all of Mediacom, the fifth-largest U.S. cable operator with almost 1.4 million customers in the Midwest and Southeast. The firm has no plans to furlough or lay off any of its 4,500 employees, Commisso said, while those required to work outside their homes have received pay increases.
“They’re going above and beyond to take care of our customers, and it’s my job to take care of them,” he said.
A $2.2 billion refinancing in March extended most of the company’s debt maturities to 2025 and almost halved annualized interest expense to $53 million. Debt costs are 1.8%, he said.
“We’re either lucky or good as to when we access the market,” said Commisso, 70, a former JPMorgan Chase & Co. banker. “We have never lost a penny for a financial institution. When you carry that record with you, when you knock on doors to borrow money, the doors open up.”
The financial firepower may prove critical.
“The biggest challenge in the short term is whether our customers have the money to pay their bills,” he said. “In the long run, assuming we could get rid of this damn virus, we’re pretty bullish as to the strength of our business.”
The Tech Titan
While SAS Institute has seen some business dry up, demand for its analytics is helping shield the world’s largest privately owned software company from the worst of the lockdown. There won’t be layoffs or furloughs for any of its more than 13,000 employees as a result of the pandemic, founder Jim Goodnight, 77, said in an April interview.
A pressing concern for Goodnight -- who’s still working from his company’s Cary, North Carolina campus -- is how the firm should operate once the lockdown lifts. Almost all of the 5,500 headquarters staff have been working from home since at least March.
“People have really gotten used to this remote work,” he said. “We’re going to have an interesting time over whether or not we want to continue some of this. Or maybe everyone goes into the office every other day.”
The fact that SAS doesn’t use open-floor layouts common in much of the tech industry should make it easier to retrofit its campus for social distancing. But there are plenty of details to iron out.
“We’re already having meetings about how to get the company back up and running with people on campus,” he said. “We’ve got a whole team working on nothing but that. We’ve got other teams working on how to do proper sanitation once people are back.”
Still, a wholesale return to pre-pandemic working practices is unlikely, he said.
“The hard decision is how do we convince everybody they should come back?”
©2020 Bloomberg L.P.