Palo Alto Weekly

Cover Story - June 17, 2011

The many worlds of George Marcus

Palo Alto's real-estate titan hopes to save University of California

by Gennady Sheyner

As University of California regents settled into their seats in a spacious auditorium on the second floor of a University of California San Francisco building in November, campus police clad in riot gear gathered outside to watch a scattering of students and workers gel into a protest movement.

The protesters marched past clusters of police officers and toward the parking lot entrance of the Mission Bay campus, where they held signs and chanted slogans opposing the employee furloughs and tuition increases on the regents' agenda ("Whose university? Our University," "No justice, no peace," "Shame on you!").

By midmorning, the orderly protest began to bubble with excitement and rage. One student reportedly stole a baton from a police officer in the parking garage, prompting a group of officers to set up barriers and push back the protesters. As students pulled out their cameras to snap photos of campus police charging into their midst, officers fought back with pepper spray. Before the end of the day, 13 students were arrested.

Upstairs, the mood was more congenial but no less contentious. Dozens of UC students from campuses throughout the state pleaded with the regents not to raise tuitions by 8 percent, as proposed. After they spoke, UC President Mark Yudof addressed the regents and discussed the need to increase these fees.

George Marcus, a Palo Alto-based developer who is now in the final year of his 12-year term on the regent board, said he strongly considered voting against the tuition increase when the meeting began. But after he heard Yudof lay out his case that the hike is needed to maintain the quality of the UC system, Marcus joined the board majority in voting to raise the fees.

"I was really on the fence," Marcus said in a recent interview. "I told the president and the chair that I'd probably vote against it unless they made a very compelling argument that this $100 million (the amount that would be raised from the tuition increases) out of a $20 billion budget is really necessary."

Marcus has never been shy about going his own way, defying expectations and bringing forth new ideas. As a regent, a top Democratic donor, the board chair at Marcus & Millichap and the Essex Property Trust, a member of Real Estate Roundtable (an industry lobbying group), and a co-founder of the National Hellenic Society, Marcus belongs to more exclusive clubs and boards than most people can name. At the same time, his companies' success was based largely on his ability to defy the old-boy network that made up the commercial real estate world in the first half of the 20th century and bring a more systematic and analytical approach to the table.

Marcus is a passionate Democrat, whose circle of friends includes Bill Clinton, Nancy Pelosi and Jerry Brown. But he also calls the state the UC system's most "unreliable partner" and believes it is the duty of the individual to give back to the institution from which he or she has benefited. His alma mater, San Francisco State University, named him in 1999 its Alumnus of the Millenium (to the possible chagrin of actor Jeffrey Tambor, former San Francisco Mayor Willie Brown and writer Anne Rice).

So it was in this spirit that Marcus spoke out during a particularly bleak meeting in January and asked all alumni to help get the UC system out of the budget mess. With state funding shrinking and costs of employee compensation and benefits rising, Yudof told the board on Jan. 20 that the university system could soon be forced to turn away eligible applicants. Regents reacted with a mixture of sadness and disappointment, with one member quoted in the media comparing himself to a "passenger on the Titanic."

Marcus then offered his own idea for keeping the university system thriving: Let's ask the university's million-plus alumni to help out. He proposed starting a "Save UC" endowment fund and offered on the spot to kick-start the fund with a $100,000 contribution. The regents are now awaiting a report on the new fund.

"We have a million alumni and many of them are just resting on the laurels of the non-taxpayers and not doing as much as they could," Marcus told the Weekly in a recent interview. "A $1,000 from each alumnus would be $1 billion. We'd never even have to talk to the state again."

The idea was brought forth at a time of particular anxiety for the UC system's current student population. With California's revenues plummeting and budget cuts the Legislature's order of the day, the university system could see its share of state funds diminish by about $1 billion, almost a third of the state's total funding.

Over the last two years, as the UC's endowment shriveled and its obligation to employees increased, the regents and Yudof responded with budget cuts and tuition increases. In July 2009, regents raised student tuition by 32 percent. The UC administration also instituted a wide range of cost-cutting measures, including employee furloughs and staff layoffs. Protests at regents meetings have become a common sight.

Though Marcus has supported the cost-cutting efforts, his independent streak has emerged every now and then. In July 2010, when the board discussed creating an online undergraduate degree program, most regents expressed enthusiasm about the initiative. Marcus was more skeptical. According to the meeting minutes, he said he was concerned that online instruction, while "fashionable," needs to be approached like any other pilot project, with close monitoring of data. He stressed the need for the regents to have "facts" available to them, rather than just opinions.

His non-conformist streak isn't restricted to the regents board. Marcus attributes the success of his real estate ventures largely to his ability to change the informal (and, in his eyes, ineffective) culture that permeated the world of commercial real estate half a century ago. He championed a new approach based on extensive research, firm positions on prices and exclusive arrangements between his company's brokers and property sellers.

The flagship company, which Marcus founded in 1971, now has seven subsidiaries. It has closed 4,032 transactions in 2010, according to the company website. Marcus is also founder and board chair of Essex Property Trust, a real-estate investment trust that became publicly traded in 1994. Essex focuses on apartment buildings in supply-constrained markets.

Marcus' interests and influences extend well beyond this real estate empire. Anyone who has earned a UC degree over the past decade, enjoyed a spanakotiropita (a Greek phyllo pastry filled with greens and cheese) at his Evvia Estiatorio restaurant in downtown Palo Alto, or sat on a bench in the city's Heritage Park (a bench that according to an engraving was made possible through a generous donation from SummerHill homes, a Marcus & Millichap subsidiary) has benefited from the boundless energy of George Marcus.

If the flurry of activity takes its toll on Marcus, he doesn't show it. Both socially and politically, he is the life of the party. His appearances in the media often read like celebrity sightings for Democratic congress members or presidential aspirants. His home in Los Altos Hills is occasionally mentioned in stories about the latest Democratic fundraising gala he and his wife, Judy, are hosting. In conversations, he is gregarious and energetic, switching fluidly between myriad topics.

"He reads a lot, he knows a lot and has more facts and figures than you can imagine, and he comes up with all sorts of crazy stuff to talk about," said Keith Guericke, Marcus' long-time friend and CEO of Essex Property Trust. "He's a very interesting guy. He doesn't turn into a dishrag after five in the afternoon."

William Millichap, whose friendship and business partnership with Marcus stretches back 40 years, agreed.

"He has so many balls in the air at one time, I don't know how he does it," Millichap said in a recent interview.

To some UC watchdogs and critics, Marcus is one of several regents (along with Richard Blum, Russell Gould and Bonnie Reiss) who epitomize the board's rich, corporate mentality. A recent eight-part series by Spot.Us detailed the clubby and highly political history of the regents board and highlighted the board's recent shift toward investing the university's endowment and retirement funds in private equities.

The series focuses on regents Richard Blum and Paul Wachter, both financiers with strong political ties (Blum is married to U.S. Sen. Dianne Feinstein while Wachter was business partner of former Gov. Arnold Schwarzenegger). It alleged, using various case studies, that these regents pursued investments in funds that benefited their own business interests.

The criticism of the board as an elite millionaires club is far from new. The series cites a 1974 Los Angeles Times investigation titled, "UC Regents: An Elite Club that Runs a Vast University," which characterized the group as wealthy, well-connected mandarins who "drive fine cars and own boats and airplanes" and whose background in education is limited, if not nonexistent.

Accusations of the regents board as too "elitist" continues to hold during times of austerity. Students facing tuition increases and union workers facing layoffs and furloughs frequently hold signs accusing the regents board of being out of touch with the masses. Assemblyman Leland Yee played the class card earlier this year, when he joined a rally to oppose the appointment of David Crane, a former financial adviser to Gov. Arnold Schwarzenegger, to the regent's board.

Robert Meister, a UC Santa Cruz professor and president of the Council of UC Faculty Associations, said in a statement that Crane is "just one more multi-millionaire who made his fortune in investment banking — just like current Regents Richard Blum, Russell Gould, Hadi Makarechian, Leslie Tang Schilling, George Marcus and Bonnie Reiss.

"The UC Regents are supposed to represent the people of California, not just the multi-millionaire investment bankers of California."

But Marcus in some ways defies expectations. The eight-part Spot.Us series only mentions Marcus when describing his opposition to the board's increasing shift to private-equity investments. In March 2010, he likened the board's riskier ventures to "gambling in Las Vegas," the series notes.

His personal story reads much closer to the up-by-the-bootstraps tale of Bill Clinton than to that of a born-rich tycoon like Donald Trump. In fact, members of the National Hellenic Society (which Marcus co-founded in 2008) might be amused to learn that the man who owns two Greek restaurants (in addition to Evvia, Marcus also owns Kokkari Estiatorio in downtown San Francisco) and who helped fund the Modern Greek Studies program at San Francisco State spent his childhood doing what most young immigrants do — striving to shed his ethnic identity and assimilate into American culture.

Born George Moutsanas in Euboe, Greece, during World War II, Marcus was 4 when his family moved to the United States in what he called a "typical economic immigration story." His family settled in San Francisco's blue-collar Potrero Hill neighborhood, where his top priority was fitting in.

"I wanted to be more American than Americans so I integrated rapidly," Marcus said.

He developed a keen interest in business at a young age and enrolled in San Francisco State University, where he majored in economics and earned a bachelor's degree in two and a half years. Though he is now a passionate advocate of higher education, his own college experience was marked by a desire to leave classes behind and enter the workforce.

Marcus said first job out of college didn't pan out as planned. He joined Bank of America where he worked with a group studying consumer behavior and potential locations for new bank branches. Marcus said his boss at the time was an alcoholic who forced all nine members of the group to leave the company within a year. He called his Bank of America experience an "unlucky draw."

In the late 1960s, Marcus settled his focus on real estate. After a brief stint working for a homebuilder, he joined Grubb & Ellis, where his job was selling investment properties. Marcus was immediately struck by the chummy, informal atmosphere in the real estate industry and decided that there was a better way to do business.

"Real estate was almost a fraternity club," Marcus said. "Your uncle or your father or someone in the community knew you and your family and you sat at some real estate office and they told you they want to sell this building or that building and you brought them some offers."

"There wasn't an analysis or appraisal, really. There wasn't exclusive representation, really. There wasn't coordination of the sale by the company, really."

Marcus said he approached the company's co-founder, Hal Ellis, with some ideas for changing the way the company conducts its business. His ideas received little traction and Marcus decided to quit and start his own company.

When George Marcus opened his brokerage business in 1971, business was tough. William Millichap, who joined the business in July of that year, said the type of system Marcus had envisioned did not yet exist. There were no clients to call and no success stories to study. The company didn't close its first deal until December.

The fledgling brokerage business tried to do something rare: enter into exclusive-listing agreements with sellers. The basic concept that Marcus championed was "representing the client and having something that's more than a free-for-all marketing," Millichap said.

"The business then was being conducted largely on an open basis," Millichap said. "If someone wanted to sell a building, they'd leak the word out to selected brokers. There were no commitments by anybody to do anything.

"Properties weren't marketed very efficiently. That's what George saw. He saw that when you make a commitment to a seller, the ability to market a property was much greater."

Marcus set up a commission system that encouraged the company's brokers to get exclusive listings. Though brokers were still allowed to work with open listings, the commission for these would be lower. The company also took firm positions on the price of buildings and discouraged clients from taking offers that fell below its estimate.

"We believed the company takes a position at the price," Marcus said. "It was highly irregular, highly unusual, very, very different."

"It would've been so easy to follow into the norm of what everyone else was doing," Millichap said. "George wouldn't let us do it."

After the growing pains of the first year, the company began to gradually expand. In 1972, it had about five employees. The following year, it hired a few more. The year after that, the company opened its San Francisco office. It also opened offices in Sacramento in 1974 and in Houston in 1976. In the mid- and late 1970s, Marcus' companies strayed outside the usual markets in bustling West Coast communities and invested in properties in Arizona and Texas.

Marcus knew how make a persuasive case for why his system is superior to status quo. Both Millichap and Guericke said they joined forces with Marcus in the 1970s because of his energy and vision.

Guericke, a certified public accountant who became the company's comptroller in 1977 before ascending to CEO of Essex Property, said he still remembers his interview with Marcus. Though he had other offers from more established companies, he said he was inspired by Marcus' drive.

"I sat down and talked to my wife and said, 'This guy seems like an absolute go-getter,'" Guericke said. "Even though it was a lesser known company, I thought we ought to hook up with him because I felt we could go somewhere.

"That was my impression — he was smart, energetic, focused. That's why I had a couple of opportunities to go to more established San Francisco real estate companies but I went with him instead."

Guericke said one principle that has always guided Essex is focusing on supply-constrained markets. In the late-1970s, the company strayed from its usual markets and invested in properties in Arizona and Texas, which promised higher returns on investments. These investments taught the companies an important lesson that they follow to this day: focus on places where competition is unlikely to materialize.

"We learned that new supply can be absolute killer from the standpoint of successful investments," Guericke said.

While shaping the company's vision, Marcus also faced a more practical challenge: retaining the company's top talent. He responded by starting subsidiaries and putting the company's top brokers and executives in charge of these new entities. When the brokerage's general counsel Roger Swanson proposed in the mid-1970s that the company launch a homebuilding business (which became SummerHill), he earned Marcus' approval even though his experience with homes was limited at the time to painting homes on weekends as a UCLA college student. Similarly, as Millichap established himself as a top broker and Guericke proved his talent as a comptroller, Marcus knew the time had come to give them leadership positions.

"I realized that if I blocked the growth of executives who are extremely talented, I could lose them," Marcus said.

Though Marcus & Millichap has a presence throughout the country (last week it announced closing a sale on a $16.1 million medical office building in Johnson City, Tenn.), its partners and subsidiaries tend to focus on supply-constrained markets on the West Coast. SummerHill Homes focuses on luxury homes in the Bay Area. Its recent projects include the Enclave at Waverley Park, a 53-home development in Mountain View (starting price: $1.7 million); the Redwood Gate community in Palo Alto, at a site previously owned by the Elks Lodge; and a 32-home Lane Woods community in Menlo Park. In the early 2000s, SummerHill also built close to 100 homes in the South of Forest Area in downtown Palo Alto, former site of the Palo Alto Medical Foundation.

More recently, SummerHill sought Palo Alto's permission for a 23-home development on San Antonio Road but saw its proposal rejected by the City Council, which felt the site doesn't have enough amenities to justify new housing.

The Great Recession and its aftermath have created new risks for real estate investors, but business continues to be brisk for Marcus & Millichap and its subsidiaries. In a recent news release, the company boasts of completing 4,302 transactions in 2010, "the highest of any commercial real estate brokerage firm." And while Essex Property Trust has seen its stock plummet from a high of roughly $140 a share in mid 2006 to about $55 in late 2008, it has climbed back and is currently hovering above the $130 mark.

Guericke attributed the success of Essex to the company's strategy of focusing on supply-constrained markets and its discipline in pursuing this strategy. Millichap also gave Marcus credit for sticking to his guns even when straying from the core business was tempting.

"You can talk to George in 1971 or 1972 and then talk to him in 2011 — he's never varied from the things he was saying then," Millichap said. "Thank God they made sense."

Marcus' experiences in overseeing a broad, multi-branched organization, investing funds and retaining top talent could prove particularly useful now that the UC system is facing its deepest budget crisis yet.

Last month, Gov. Jerry Brown unveiled a revised budget that projects the types of cuts California would have to make if voters don't approve extensions of temporary taxes. This "all-cuts" scenario includes reducing state funding for the UC system by $1 billion (out of a total of about $3 billion). Before Brown announced this revised budget, the regents had been bracing for a $500 million cut. Yudof responded to Brown's announcement with a statement, calling the all-cuts budget a "retreat by the state from its historic support of higher public education in California." He also said the proposed cuts would likely force the UC system to raise the tuition by another 32 percent.

"A cut of this magnitude would be unconscionable — to the university, its student and families, and to the state that it has served for nearly a century and a half," Yudof said.

Marcus called the latest budget proposal "horrific."

"We're just praying that it doesn't happen," Marcus said. "We have to lay plans for it and do what it takes, both in cuts and in tuition increases."

Marcus says his top priority as a regent is preserving the quality of the UC system and retaining the best and the brightest researchers and students. At a meeting in July 2010, when his committee discussed the topic of student admissions, he asked whether the UC system is still identifying and recruiting the best students in the nation. When told that top students now increasingly choose private universities over the UC system, Marcus called this trend "unacceptable."

"I'm the regent that, if there's something you can brand me for (and all us have an issue or two or three), it's maintaining quality," Marcus said in an interview. "Maintaining quality to me is providing whatever resources, non-financial as well as financial, are necessary to retain and recruit the best faculty."

He hopes UC alumni will recognize the value of their education and help become part of the solution through the "Save UC" fund. The all-cuts proposal, which was unveiled about six months after Marcus called for a $1,000-a-person fund, only added to the sense of urgency.

"It would be $1 billion," Marcus said. "You'd get enough from the endowment funds to relax."

Marcus said his own history of giving — to San Francisco State, to the Democratic Party, and to charities such as the William Clinton Foundation (to which he contributed more than $250,000 dollars, according to a New York Times investigation) — was prompted by his simple proposition that "it's really everyone before you that you owe your success to." In a recent interview, he called himself the "luckiest recipient of what the United States is and what Bay Area is."

Marcus said his ties to the Democratic Party were heavily inspired by Franklin Delano Roosevelt and other party leaders in the first half of the 20th century — leaders who Marcus said made it possible for immigrants like his father to succeed in this country. While he regularly donates money to leading Democrats and Democratic causes, he said he neither expects nor requires the recipients of his money to owe him any favors or to immediately return his calls. (Recipients of Marcus' contributions apparently have similar expectations. The fact that Marcus was Palo Alto's top donor to Jerry Brown's latest gubernatorial campaign didn't stop Brown from issuing the all-cuts budget that slashes UC funds by $1 billion.)

"It isn't a requirement of mine to be able to access them," Marcus said. "All the hullabaloo about how you give money and you get your way — that's baloney.

"The politicians I support would never do that — they're principled beyond belief."

Brown's victory notwithstanding, Marcus was dismayed by the country's direction after the 2010 election, which saw the Republicans wrest the majority of the U.S. House of Representatives from the Democrats. He criticized the Republican leadership for its "belligerent misrepresentation" of various issues, most notably President Barack Obama's health care reforms.

"If you lie often enough and loud enough, people will believe some of this garbage about 'death panels' and ridiculous things like that," Marcus said. "How can you characterize something that's attempting to insure people who aren't insured as evil and bad? But that's just part of this notion that government is bad and whatever it does is bad, too."

His views on the American government are shaped both by his status as an immigrant and his frequent trips to other parts of the world. A year ago, he went to Poland to learn about the country's Jewish culture and the $140 million museum that is being built to honor the contributions of the Jewish population. Last month, he came back from a trip to West Africa that put America's governmental woes in perspective. The boat trip started in Ghana and included visits to the Ivory Coast, Liberia, Sierra Leone and Senegal before winding to Morocco, Spain and Canary Islands.

Along the way, he learned about the region's poverty, low literacy rates, history of tribal hatred and frequent military coups. He said the trip was "fascinating" and instructive. It taught him that by comparison with the political instability in Africa, "we have no problems here."

"I'm a believer that we have a unique system here and that experience will continue to show that it's the best form of government," Marcus said.

Read the report

To read the eight-part investigative Spot.Us series on the UC Regents' investing strategies, go to http://spot.us, search under "The regent investor's club" and click on the "published" tab. The Weekly helped fund the series.

Staff Writer Gennady Sheyner can be emailed at gsheyner@paweekly.com.

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