As all eyes were on the Fed’s interest rate hikes Wednesday, billionaire investor Sam Zell was busy sharing his thoughts on the economy, market trends, and why we shouldn’t be ignoring Donald Trump.
The biggest headlines from the Bloomberg interview so far have been Zell’s prediction that we’re headed for another recession in the next 12 months, and that the interest rate hike is “probably 6 or 8 months too late”.
Sam Zell bases these tremendous claims based upon the following: U.S. production and U.S. businesses are competitively disadvantaged by the strong U.S. dollar vs. places with devalued currencies. On the whole, world trade is slowing. Though employment is improving, the growth is happening in low-end jobs. And China might be on the break of its own recession.
Chilton Capital's REIT Composite was up 6.1% last month, compared to the MSCI U.S. REIT Index, which gained 4.4%. Year to date, Chilton is up 6.3% net and 6.5% gross, compared to the index's 8.8% return. The firm met virtually with almost 40 real estate investment trusts last month and released the highlights of those Read More
One way to strengthen the economy? Focus less on monetary policy and more on fiscal stimulus packages, like large infrastructure projects.
With fears about the U.S. economy, Zell is looking at his next potential investment opportunities. Markets like China and Brazil may be struggling, but “as an investor, I’m always looking at where nobody else is willing to go,” says Zell. He wouldn’t consider just any market; Sub-Saharan and Southern Africa opportunities are off the table for him now “simply because there’s no scale, and there’s no capital markets”. Instead, he’ll be eying markets with a growing middle class (e.g. Brazil, Mexico and Colombia).
It’s not just real estate that this mogul is looking at. Energy investments are also on the table, with Zell being more focused on gas than oil. “You know, it’s a little bit like real estate,” he explained. “We made a fortune because we bought real estate at a discount to replacement cost. Well we’re buying gas in the ground, gas that’s been drilled. People have spent $10 million a well, we’re buying wells at dramatically less than that. So it’s the same kind of creating a competitive advantage by virtue of your entry price.”
Could that be why Zell is selling off so much of his real estate portfolio? To focus on the energy industry? Not quite.
The commercial real estate market is on fire, making it “very hard not to be a seller” says Zell. He reaffirmed the company’s strategy to sell off its garden apartment portfolio. As he’s mentioned before, Equity Group Investments wants to more narrowly focus on downtown, urban markets in cities like New York and Boston (but…apparently…not in Chicago).
Those markets are also where we might start to see an uptick in apartments rented through online platforms like Airbnb. All of the big multifamily owners have been approached by Airbnb already, said Zell, EQR included. It won’t dramatically change the market, but there might be some scenarios where a rental property is “much better suited to be used as a semi-hotel”.
On Dodd-Frank, Zell says he thinks the legislation is a “job-killer” and a “very, very negative scenario for the American economy”. It isn’t the first time that Zell has expressed his utter disgust with the Dodd-Frank bill; he’s been calling for its repeal for years now.
But this shrewd business investor makes it clear that while he’s pro-business and eager for regulatory reform, he doesn’t think the answer is to bring Donald Trump in to office. “I don’t think he would be my choice for President,” says Zell, though he acknowledges that the public should not underestimate him. “He’s competent, accomplish, smart” – all very important factors to the public. “The American people are extraordinarily angry. The American people are extraordinarily depressed.”
The Bloomberg interview provided incredible insight to those speculating that Sam Zell was predicting another market cool off. Though he said just a few months ago that that wasn’t the case, he only reaffirmed this speculation in the interview this week. While his prediction about the economy may not have been the exact reason why he started selling off the Equity Residential Class-B portfolio of apartments, there’s no doubt now how he feels about the strength of the economy more generally.