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Interview: Sam Zell, real estate tycoon

Interview: Sam Zell, real estate tycoon

Can western real estate recover? Is emerging market real estate worth the risk? And why won’t the billionaire buy any gold?

January 26, 2011 3:13 by

It’s a rare thing when you hear one of the world’s greatest business minds admit to something as being beyond the realm of his expertise. But that’s exactly what makes the real estate tycoon Sam Zell such a sought-after commodity: He focuses on his core business interests and won’t waste your time telling you otherwise.

During our recent chat with Zell, we were keen on getting his views on the global economy. Plus, we wanted to know the prospects for commercial real estate in both his home country of America, as well as in the developing world, where he is rapidly expanding his investment portfolio.

But we couldn’t help but mull over his response to a random question about gold. “I’d be the first to tell you that I don’t understand it as an asset class,” he said. “It’s difficult to get my arms around. There’s no income from it and it costs money to store. There’s a limited amount of it in the world, so if you went back to the gold standard, you’d shrink the world’s wealth dramatically.”

We think he’s on to something. When a multibillionaire investor (yes, Warren Buffett also comes to mind) tells you he doesn’t invest in things he doesn’t understand, it’s good to get his advice on those things for which he does have a knack.

At the top of our list was if commercial real estate in the West was going to be one of the world’s greatest distressed investment opportunities. Or are we too late to the party? “I’m supposed to have done more distressed real estate deals than anyone else. But this time, commercial real estate isn’t in distress. Yes, there are lots of overleveraged assets and zombie owners, but the cost of capital is low,” Zell said.

The key to understanding real estate, he said, is this: The real estate market is all about supply and demand. If you have no supply, even if demand is weak, real estate does well. It stands to reason that areas of the world where demand is skyrocketing currently hold a lot of Zell’s attention. Pent-up demand in the emerging markets is what’s driving his real estate portfolio, because there’s none of it in America or Western Europe, he said. “We are in a slow-growth environment in North America. It’s a demographic time bomb – an ageing society that’s becoming less productive every day,” he said.

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