TDE2012: Fascitelli and Pagliuca talk real estate, tech

At 10 a.m., two well-known 1982 graduates of Harvard Business School sat down for a 30-year retrospective of dealmaking. They were Michael D. Fascitelli, president, CEO and trustee, Vornado Realty Trust; and Steve Pagliuca, managing director, Bain Capital LLC. The moderator was Kayla Tausche, a reporter for CNBC.

Fascitelli made a quick point about leverage and its beginnings: "Real estate was the original LBO market. The early '90s was a crisis time, but that's when I got my start there. When we were buying, we were scared, but they turned out great."

Fascitelli added, "In 1998, the Russian debt crisis started, and all of a sudden liquidity dried up around the world. One guy said to me, 'What do I care what's going on in Russia?' I said, 'You're gonna care.' Then you had the dot-com bust, when people were going to intangible assets, calling us old dinosaurs, but we're champions again because now we're back to hard assets."

Pagliuca said, "It's hard to sit in the cycle and lets these thing pass you by." He offered that these days the Internet has changed everything and the exorbitant "flow of information is causing some people to overreact. This downturn is tough; you look at Europe and the euro -- will they have to break it up? And now the U.S. is much more interlinked to the global economy."

Tausche then asked about IPOs -- LinkedIn, Groupon: "How can a negative-revenue company be worth billions of dollars?" Pagliuca laughed and said, "I'll put my money in Vornado." Pointing to solid companies, he added that you look at the dominance of "revolutionary" companies like Google and Amazon, which are "changing the face of retailing. Those valuations, maybe, are supportive. It's hard to pick out winners. Look at Netscape and how Google dominated the space." Fascitelli went on to say that tech is a tricky thing because it can change so quickly. "I feel there's a valuation bubble. My kids made better bets than our portfolio because they went with things they knew, Google, Apple, Nike. We should put them to work," he said, laughing.

Pagliuca turned to the nature of VC. "Facebook is on a huge run, and they may fight with Google; also, it's bordering on a natural monopoly." You have to be diversified: The average person is making one bet, such as on Google, but you don't know if a company is going to fail, he said. "VCs have a portfolio, say, of 25, and seven or eight will fail, and if they're lucky, maybe there's a Google in one of them."