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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: renovator who wrote (149583)	9/23/2008 5:08:12 PM
From: MulhollandDrive	Read Replies (1) \| Respond to of 306849

i know he sold his CRE at the top, but bottom line is zell is a real estate developer and i don't expect any realistic assessment of where CRE is headed coming from him... here's his analysis from 2005 (apparently he listened to his co-panelist mr. downs and sold while he was saying CRE cap rates would stay low for years to come and sold 'what he didn't want to own' ) realestatejournal.com Sam Zell, Others Offer An Industry Outlook by Ray A. Smith From The Wall Street Journal Online April 18, 2005 Industry conferences tend to be cheerleading events, with nothing but the rosiest outlooks on stage. That wasn't the case last week in the ballrooms and halls of the Four Seasons Hotel in Chicago at the conference of the Counselors of Real Estate, a Chicago-based group of leading real-estate advisers. One point hammered home was that real-estate investors should get used to low yields from property investments, largely because so much capital is being thrown at real estate that prices are being bid up too high. And many wondered how long the cash would keep coming. Real-estate mogul Sam Zell, chairman of two of the biggest real-estate investment trusts in the country, Equity Office Properties Trust and Equity Residential, said during a panel discussion that "in an environment of excessive liquidity," he thought the industry would be dealing with lower yields, or cap rates, for the next nine years. While that would mean the income streams generated by real estate would be low, the prices paid for buildings would remain strong. "The wealth of liquidity" in the real-estate market means "assumptions have to be rethought," he said, adding that real-estate prices would stay high and cap rates, which are the estimated rate of return on a property at the time of the purchase, would stay low for another nine years "rather than 90 days." But Mr. Zell's co-panelist, Anthony Downs, a senior fellow at the Brookings Institution, told the audience that Mr. Zell's forecast was too optimistic, pointing out that prices were vulnerable to a sharp increase in interest rates or better performance by the stock market, which could pull investors away from real estate. "Something is likely to change the flow of funds into real estate. To think low cap rates can go on indefinitely goes beyond what the evidence would support," Mr. Downs said. He added that this flood of capital makes now a "great time to sell," implying that real-estate prices are nearing their peak with little price upside left. "Sell whatever you don't want to keep," he said. Mr. Zell agreed that it's a good environment to "sell what you don't want to own." He said Equity Office has been selling a lot of assets out of markets where the REIT doesn't want to be in long term. Mr. Downs observed that the flood of capital hasn't spurred new development, except for construction of an upscale form of shopping centers known as lifestyle shopping centers and residential condominiums. But he wondered aloud how long it would be before developers would start building again, especially as fundamentals improve. Mr. Zell added that high construction prices as well as better information in the real-estate industry than in the past have played key roles in keeping development in check. Mr. Downs worried that condo construction was an exception. "When investors get on a new bandwagon, there's always a propensity to overshoot the mark. I think that's happened in high-rise condos," he said. He said he didn't see a housing bubble because single-family homes tend to be owner-occupied. But he said there could be a condo bubble, especially as condos attract investors and speculators. One broad point made by the panelists was that investors are pricing assets as if the fundamentals were universally strong and the future solid and predictable. Neither, of course, is true. Then they went on to list all of the things that could go wrong, leaving investors vulnerable. There were concerns raised about the widening U.S. trade deficit and how that might affect interest rates and, ultimately, real-estate prices. Higher interest rates could result "if foreigners don't want to hold dollars or government securities," said Raymond G. Torto, principal and chief strategist of Torto Wheaton Research, a Boston-based real-estate research firm. Torto Wheaton is a unit of Los Angeles-based CB Richard Ellis Inc. He warned that higher rates could reduce the value of buildings. "If the deficit causes [the Federal Reserve] to raise interest rates, that could have effects on the level of cap rates. Rising cap rates have implications on pricing for real estate." Rising interest rates also have implications for buyers. Some attendees worried that too many buyers are putting too little cash into their deals and levering up to the hilt. "So much of the borrowers don't have a lot of equity in their deals ... ; for some of us that have been in past cycles, it's starting to look like the situation that occurred in the late 1980s and early 1990s, when lenders took back properties," said James Lee, a senior principal at Kensington Realty Advisors Inc., a Chicago investment adviser. "If there is any kind of a hiccup or rapidly rising interest rates, there's not a big cushion. So if something happens, there could be a lot of lenders subject to taking back properties." Mr. Torto of Torto Wheaton and others also expressed concerns about high oil prices, which they feared would slow U.S. economic growth. Slower growth would mean a slower recovery in commercial real-estate fundamentals. Email your comments to rjeditor@dowjones.com

To: renovator who wrote (149583)	9/23/2008 5:14:22 PM
From: MulhollandDrive	Respond to of 306849

he already has....he bot the trib tower AND the paper itself after unloading equity office properties and now is trying unload more CRE: dealbook.blogs.nytimes.com Zell Mulls Sale of Tribune Tower Zell, the real estate magnate who took the Tribune Company private last year in a $8.2 billion deal, may be returning to his roots. In effort to pay off Tribune’s mounting debt, which The Chicago Tribune reports now stands at roughly $13 billion, Mr. Zell is exploring the possible sale of the media company’s headquarters on the Magnificent Mile in Chicago and buildings in Los Angeles. Tribune said it had asked real estate firms to explore “strategic options for maximizing the value” of Tribune Tower, a Gothic landmark completed in 1925, and Times Mirror Square, the headquarters of The Los Angeles Times. “Both Tribune Tower and Times Mirror Square are iconic structures, deeply intertwined with the history of this company,” Mr. Sam Zell told employees in an e-mail message. “But they are also underutilized,” he said, adding, “It’s in our best interests to maximize the value of all our assets.” About a year before inking his deal to take on Tribune, Mr. Zell, who first made his fortune in the 1970s by buying distressed real estate and fixing it up, sold his Equity Office Properties to the Blackstone Group for around $39 billion. While the Tribune properties won’t net the mogul anything close that sum — The Chicago Tribune pegged the price at around $200 million — the Tribune Tower’s iconic status may help Mr. Zell unload the porperty, despite a somewhat challenging real estate market. The tower could command a high lease rate because “there are prospects out there that would appreciate the historic nature of that building,” Gary Denenberg, a senior vice president with MB Real Estate, told The Chicago Tribune.