Sam Zell

[TJ_98370]

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Sam Zell made his fortune in real estate and has some interesting things to say about the industry and the economy. It's key to note that he was savvy enough to recognize and to take advantage of cycles in the real estate market. He has demonstrated a successful strategy for "..... profiting off distressed real estate following the inevitable bubbles of investment enthusiasm." While I do not agree with all that he says, it's difficult to totally discount his opinion considering his past success.

".......real estate people lack the ability to "look around the corner. To them, the tree is always growing to the sky. Therefore, we have enormous and very volatile cycles that continue to this day..."- Sam Zell



Samuel "Sam" Zell (born September 1941) is a U.S.-born billionaire and real estate entrepreneur. He is co-founder and Chairman of Equity Group Investments, a private investment firm. With an estimated net worth of US$6 billion, he is ranked as the 52nd richest American by Forbes......

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Sam Zell, the master real estate investor, has built a fortune on the cycles that shape his industry. These days, he believes the current turmoil in financial markets is more an emotional reaction to yet another period of excess rather than a true credit collapse.....

....."We're not really in a quote 'credit crunch.' I think what we are in is a 'confidence crunch,'" said Zell, funder of the Samuel Zell and Robert Lurie Real Estate Center at Wharton. "I would argue the excess liquidity that existed eight weeks ago (July 2007) still exists today. It has a different risk premium on it, but the actual amount of liquidity has not changed."

Zell said the slump should come as no surprise: "Over the last three years people were flippant. They bought anything they wanted and were proud that they didn't do due diligence. I think they have all been chagrined and are scared out of their minds." ......

......While real estate professionals have excellent transactional skills, he added, they often lack the foresight to plot strategy. "When it comes to delegating the negotiation of a transaction, I would always pick a real estate guy over a corporate guy," said Zell. On the other hand, real estate people lack the ability to "look around the corner. To them, the tree is always growing to the sky. Therefore, we have enormous and very volatile cycles that continue to this day.".......

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Question and answer type interview with Mr. Zell --



......You own a residential REIT--Equity Residential--and thus have an interest in how housing plays out. We're already starting to see investors renting instead of selling homes they bought, because they can't unload them. And a glut of new rental housing could impact rents in buildings like yours. Where is housing headed?

The key to housing is the employment rate. As long as the employment stays basically full--say, under 5.5%--I see no major crisis in the housing market. Yes, we have a subprime issue. Yes, we have a lot of investors who got hung out, but I don't see the crisis the way the media portray it. And consequently, as long as employment stays strong, I don't see any issue as far as rental housing is concerned. Our apartment company continues to rent at 95%. We continue to see same-store-sales increases from one year to the next. I don't think that the unsold inventory of houses will have any dramatic effect on the apartment-rental business. The cost of owning is helping the rental-housing business today, and it will continue to do so. I don't expect any significant competition from unsold houses.

You say you don't see a crisis. Yet we're hearing about a growing number of defaults, and credit has become tighter even for conventional mortgages--not just subprime ones.

But we're also building a lot less houses now. For many years, we averaged about 1.6 million houses a year. And then in the last four years, we went to 2.1 million. We're regressing to the mean. So there will be a period of indigestion but no crisis. No meltdown in the housing market. That's ridiculous.

What about all the individual investors who jumped into the housing boom to flip homes and were left with hundreds of homes to sell when the music stopped?

All of those people were all about greed. And where is it written that thou art entitled to flip a profit? Not anywhere I know of. So I'm not very sympathetic. And the fact that all of these investors allowed their greed to overcome their fear--that's the way the world works.

Where do you see the economy going? Are we heading for a significant slowdown or recession in 2008, as some economists have predicted?

Not 2008. If you had to pick the next cycle change, logic would say it would be sometime in 2009 because of a new presidency and because of the various factors in the market. And that's a probability. But I don't see it as 1990 or 1974 or any of those periods where we had a real serious downturn.....

.....You have a long and successful track record for picking up distressed assets, turning them around and pocketing big returns. Do you anticipate a glut of distressed assets out there in the near future, given the problems in the credit and debt markets?
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I don't think there's going to be any massive amount of distressed assets....

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