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Sam Zell’s Equity LifeStyle Properties (ELS) is the largest mobile home park owner in America, with controlling interests in nearly 140,000 parks. In 2014, ELS

Sam Zell’s Equity LifeStyle Properties (ELS) is the largest mobile home park owner in America, with controlling interests in nearly 140,000 parks. In 2014, ELS made $777m in revenue, helping boost Zell’s near-$5bn fortune. I first read up on Zell when EQR took over my low-income housing in East Palo Alto a few years ago. It's clear that his investment strategy is so unethical it borders on despicable. Zell's entire fortune is built on exploiting the REIT tax loophole: Equity Residential, a real estate investment trust (REIT), engages in the acquisition, development, and management of multifamily properties in the United States. As of December 31, 2007, it owned and invested in 579 properties in 24 states and the District of Columbia consisting of 152,821 units. The company qualifies as a REIT for federal income tax purposes. As a REIT, it would not be subject to federal income tax to the extent that it distributes at least 90% of its taxable income to its shareholders. Equity Residential was founded in 1966 and is headquartered in Chicago, Illinois. (sources: http://finance.yahoo.com/q/pr?s=EQR http://finance.yahoo.com/q/pr?s=EQR, http://finance.yahoo.com/q/pr?s=ELS http://finance.yahoo.com/q/pr?s=ELS) So what happens to a community when all of its wealth is getting funneled out tax-free? To just a handful of ridiculously overpaid executives who get tax-free compensation?

harryh 11y ago
Unless there is something I'm not understanding here, the income isn't tax free. It's just taxed at the individual rather than corporate level.
- girvo 11y ago
  IANAAmerican, but would that change where the tax goes? Would that mean the city receives less tax that would help the poor that are the ones at the centre of it? I'm honestly curious, I don't know enough about how US tax works.
  - harryh 11y ago
    No, probably not. There are both corporate and individual taxes at both the federal and state level.
  - phamilton 11y ago
    As someone else pointed out, property tax is entirely different and does not fall under the category of "federal tax" (it's actually at the county level with city level additions). EPA is getting property tax. If they were a normal real estate company (not an REIT) and they were based in Palo Alto with properties in East Palo Alto, East Palo Alto still wouldn't see a dime of any non-property tax.
- surrealize 11y ago
  It's tax free for the REIT. If it were a C corp, it'd have to pay tax on earnings, and the shareholders would also have to pay tax on dividends. So for the REIT there's a meaningful sense in which "tax-free" applies.
jessaustin 11y ago
tax-free compensation IANATaxLawyer, but this seems like a misrepresentation. Those who own REITs do pay taxes on any income they receive from those. It's just that the REIT itself is not paying tax first. Are you actually objecting that REIT income is not subject to "double" corporate taxation about which tax reformers occasionally complain? This seems silly, in light of how many corporations arrange to pay "zero" income tax.
- shawnee_ 11y ago
  An REIT in Chicago, Illinois which is able to come in and quite literally leech the low-income wealth of a community in East Palo Alto ...yes, that REIT should have to pay the city of EPA or the state of California for that "opportunity". Should it be paid for in the form of another tax? Maybe, but that is not always efficient, as you pointed out. So how else could it pay? How about in direct shares given to residents of takeover properties in exchange for their rent or rent increases? I like that idea better. Because whether it's rent or shares... they're both going into the REIT's bankroll; this might actually make renting an appealing opportunity (and create the good kind of competition among landlords) if renters could (or had to be) paid a refund or rebate based on REIT dividends. Maybe this is what Eisenhower originally envisioned.. it was the 1960's and the Interstate highway system was still being developed. Let the wealth and assets of a city/community stay in the city. Residents with more disposable income (especially low-income) tend to spend it locally -- or let them save to be able to buy their way out of the slavery of renting.
  - greedo 11y ago
    The REIT is making an investment in the housing; they're due a return, otherwise no one will invest in this type of housing, and thus there will be no housing. Pretty simple economics. No return on investment, no investment. And the REIT does pay taxes to EPA, property taxes. If they have employees based in CA, they pay payroll taxes as well. It's not as if some faceless Borg is siphoning out the good people of EPA's money without contributing anything.
    - 11y ago
wombatpm 11y ago
You get to watch Sam Zell screw over the employees of the Tribune Corporation, use their pension money and assets to service the debt, then run the corporation into the ground while Mr. Zell plays publisher and CEO?

harryh 11y ago

Unless there is something I'm not understanding here, the income isn't tax free. It's just taxed at the individual rather than corporate level.

girvo 11y ago
IANAAmerican, but would that change where the tax goes? Would that mean the city receives less tax that would help the poor that are the ones at the centre of it? I'm honestly curious, I don't know enough about how US tax works.
- harryh 11y ago
  No, probably not. There are both corporate and individual taxes at both the federal and state level.
- phamilton 11y ago
  As someone else pointed out, property tax is entirely different and does not fall under the category of "federal tax" (it's actually at the county level with city level additions). EPA is getting property tax. If they were a normal real estate company (not an REIT) and they were based in Palo Alto with properties in East Palo Alto, East Palo Alto still wouldn't see a dime of any non-property tax.
surrealize 11y ago
It's tax free for the REIT. If it were a C corp, it'd have to pay tax on earnings, and the shareholders would also have to pay tax on dividends. So for the REIT there's a meaningful sense in which "tax-free" applies.

jessaustin 11y ago

tax-free compensation IANATaxLawyer, but this seems like a misrepresentation. Those who own REITs do pay taxes on any income they receive from those. It's just that the REIT itself is not paying tax first. Are you actually objecting that REIT income is not subject to "double" corporate taxation about which tax reformers occasionally complain? This seems silly, in light of how many corporations arrange to pay "zero" income tax.

shawnee_ 11y ago
An REIT in Chicago, Illinois which is able to come in and quite literally leech the low-income wealth of a community in East Palo Alto ...yes, that REIT should have to pay the city of EPA or the state of California for that "opportunity". Should it be paid for in the form of another tax? Maybe, but that is not always efficient, as you pointed out. So how else could it pay? How about in direct shares given to residents of takeover properties in exchange for their rent or rent increases? I like that idea better. Because whether it's rent or shares... they're both going into the REIT's bankroll; this might actually make renting an appealing opportunity (and create the good kind of competition among landlords) if renters could (or had to be) paid a refund or rebate based on REIT dividends. Maybe this is what Eisenhower originally envisioned.. it was the 1960's and the Interstate highway system was still being developed. Let the wealth and assets of a city/community stay in the city. Residents with more disposable income (especially low-income) tend to spend it locally -- or let them save to be able to buy their way out of the slavery of renting.
- greedo 11y ago
  The REIT is making an investment in the housing; they're due a return, otherwise no one will invest in this type of housing, and thus there will be no housing. Pretty simple economics. No return on investment, no investment. And the REIT does pay taxes to EPA, property taxes. If they have employees based in CA, they pay payroll taxes as well. It's not as if some faceless Borg is siphoning out the good people of EPA's money without contributing anything.
  - 11y ago

wombatpm 11y ago

You get to watch Sam Zell screw over the employees of the Tribune Corporation, use their pension money and assets to service the debt, then run the corporation into the ground while Mr. Zell plays publisher and CEO?