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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 Jay Akasie
Consider the fact that Zell’s real estate investment arm is the largest owner of shopping malls in Brazil. “We’re running 14 to 15 percent same-store sales growth. That’s massive when you stretch it out over 15 years, considering America is seeing one to two percent same-store growth during the same period,” he said. And, he said, although it’s true that politically those developing countries can destroy themselves, many of them seem to have learned lessons. Brazil, for example, is holding interest rates because many in the government and private sector remember the bad times, he said.
So, what’s the bottom line when it comes to investing in emerging markets? Zell said that you trade the rule of law for growth. “Plus you have to ask who’s your partner in each country. It has enormous impact on your threshold of success.”
The historic disconnect between the developed countries and the emerging markets is changing, Zell said. “The developing world got pneumonia when we got a cold. Now they’re developing their own mantra. China goes directly to Brazil. Emerging markets are changing the rules of the game,” he said.
Not everything in the emerging markets is coming up smelling of roses. Businesses without scale don’t work. “We exited Chile because we really couldn’t expand our business there. Now Chile, Peru, and Colombia are integrating their three bourses. When you ease the access to capital, capital comes,” he said. So small nations have access to capital markets that they never had before because of their scale.
Zell has a warning for the style of real estate development that has gotten some Middle Eastern nations laden with debt. He says that the pitfall of the real estate world has been real estate by design. “‘Build it and they will come’ used to be a popular saying. They have to want to come.
“I’m cynical on anything except core real estate properties, especially institutional-quality real estate,” he said.
Likewise, Zell has strong opinions about the hospitality industry. “When there’s no supply, there’s no better business in the world than the hotel business. But when there’s lots of supply, there’s no business that’s worse,” he said.
Even though Zell doesn’t claim to understand gold, he knows a lot about the currency markets. “Ultimately, the biggest loss to America would be the loss of the dollar as the world’s reserve currency. If that were no longer the case, you would see a 25 percent drop in the standard of living in America,” he said.
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