Sam Zell: CRE’s Demise is Overblown
(Dec. 1, 2009) So what to really make of all the talk about commercial real estate’s coming demise and the catalyst for a double-dip recession? Appearing on a CNBC special “Billionaire’s Roundtable” this morning, Chicago-based Sam Zell said the savants are blowing a lot of hot air.
“It reminds me of Mark Twain, who was famous for saying that reports of his death were greatly exaggerated. I just don’t believe that’s the case,” Sam Zell, chairman of Equity Group Investment, said about speculation that commercial real estate will trigger a deeper national recession.
Specifically, he pointed to the fact that new construction has been at a near standstill for the past two years, and not much is planned for at least two to three years down the road. “This was a demand recession, not a supply recession. Dilution will be the solution.”
Zell noted that the hardest hit property sectors should recover first, led by apartment and office properties. He dissed the viability of the lifestyle retail concept and said prime malls will get through this difficult period.
Zell also pointed to rising debt created by the U.S. government as a potential trouble spot, specifically leading to inflation in the coming years. “If you continue to raise the debt level… it’s just mathematically impossible for us not to have inflation,” Zell said.
His advice to Washington? “Under the medical thesis, the rule is: ‘do no harm’. I think somebody needs to go to Washington and tell them: ‘do no harm’,” he quipped.
As for Dubai, he said, “The Dubai situation was a lot like the situation where people bought subprime debt based on the ratings. If it was rated A they bought it. They didn’t look at the underlying debt. They substituted diligence for intelligence.”
