OG Gold Mine Series: Who is Stephen Ross?
There’s the rich. And then there’s the super rich.
Stephen Ross is a member of the super rich club who made his billions by using his tax smarts by organizing deals for investors. He capitalized on the opportunity offered by affordable housing construction that allowed wealthy investors to shelter income with federal government incentives.
From Jobless to Developing New York City Destinations
"Being successful, you don't go straight up. There's going to be obstacles along the way."
Ross graduated from the University of Michigan with a Bachelor of Business Administration, from Wayne State University Law School with a Juris Doctor degree, and from New York University School of Law with a Master of Laws in Taxation. A Detroit native working in New York City, he got himself fired from his job at a securities brokerage firm and an investment bank and had to borrow money from his mother. That wasn’t the end of things; it was the very beginning. In fact, he says that the firing, “..was the best thing that happened to me.”
Ross went on to found The Related Companies in 1972 with the borrowed money. It would not only be successful; it would develop or acquire more than $60 billion worth of properties by 2022, including the ultra-modern Hudson Yards on Manhattan's west side and the swanky Deutsche Bank Center (formerly the Time Warner Center). It would also be one of the largest owners of affordable housing in the United States.
How a Market Crash led to Glamourous Building
"I want to be the best in class, whatever I do.”
At the time of the 1990’s real estate crash, Ross approached his banks with the promise of collateral for time to pay down the debt owed by Related Cos. They extended grace to his request, and he went on to completely change the New York City landscape.
The glamorous Deutsche Bank Center was completed in 2004, a 2.8 million square foot tourist hub just a few steps away from Central Park that is home to upscale retail stores, five-star restaurants, a hotel and even offices. The largest and most expensive real estate project in America - Hudson Yards on Manhattan’s West Side - consists of 28 acres that cost almost a billion dollars an acre. It opened to the public in 2019 and is set to be completed by 2025.
Other mega-projects in the works include those to transform sections of Los Angeles, Santa Clara, and Chicago.
What on earth funds these projects that outrank historical spend, scale, and scope?
The Opportunity of Government-Subsidized Housing
“We generate enough cash flow to put in to the projects internally from our profits...I control my destiny."
Not all of Ross’ projects were successful. Some didn’t come to fruition. Some were cancelled. But he kept going.
The funding power behind Ross’ unparalleled projects is in something much less glamorous than his luxurious penthouses and lifestyle centers: affordable housing. He realized long ago that federal government tax incentives offered an incredible opportunity to developers willing to play the game. In fact, the government doles out $5 million each year to private developers who keep rents artificially low for long periods of time. Developers usually sell the credits to syndicators and use the money to renovate the housing. The syndicators bundle the tax credits and sell them to investors for a pretty price.
Not in Stephen Ross’ case.
Related Cos. owns over 37,000 apartments across the United States, 90% of which are government subsidized units. Even with his practice of charging below market rates for apartments, Ross rakes in profit because of his mastery of tax credits. The reliable and steady income from affordable housing generates a stream of money that is in turn used for gigantic, risky mega-projects. Ross understands the complications of both the developing side and the syndicating side of the business, and uses it to his advantage. Ross even founded the finance company CharterMac that secures and sells tax credits to investors and invests in tax-exempt bonds. But this strategy is a rarity among developers; it’s simply too difficult.
And this is how he made his wealth.
There’s No Slowing Down this Billionaire Philanthropist
“When you love what you’re doing, you're not working a day in your life. That's how I feel.”
Aside of his flagship company Related Companies (named by Fast Companies as one of the 50 most innovative companies in the world), Ross partnered to found RSE Ventures, a private investment firm that focuses on companies in sports, entertainment, media, marketing, food, lifestyle, and technology. He owns the Miami Dolphins, and is a primary investor in Equinox FItness Clubs, Equinox Hotels, SoulCycle, and numerous fast casual restaurant chains. These interests might seem disjointed and random, but for Ross, everything is strategic.
Ross is, as you could guess, an avid philanthropist. He donated millions to The University of Michigan and NYU School of Law, sits on the boards of numerous foundations, and has pledged to give more than half of his estate to philanthropic causes and charitable organizations through the Giving Pledge. Most notable is his involvement with the World Resources Institute, through which he established the Ross Center for Sustainable Cities and awards sustainable practices in construction.
Ross resides at his home in the Deutsche Bank Center in Manhattan and his $31 million oceanfront Palm Beach mansion.