market folly

Next up in our notes from Invest For Kids Chicago 2013 is Sam Zell of Equity Group Investments and he gave his thoughts about real estate.


Sam Zell's Presentation at Invest For Kids Chicago

•    Business card is a book call “Quotations from the Chairman”
o    “Be a risk taker yet define risk in your own terms”
•    Perspective on US real estate in commercial sector
•    Flavor of the month – obsession of buying single family homes
•    Zell turned down the offers to operate a platform – Zell operates largest
o    Average of 400 units per location
o    Yet lower number of HVAC systems
o    Don’t see how it equates to a public company
•    How would you get credit in the stock market when the market doesn’t get one-time gains – not likely to be a very good public company going forward
•    Yet multifamily is probably the strongest sector in real estate
•    Deferral of marriage – times were different “there was no pill”
•    5 years ago Motorola rented prices in the city bc they couldn’t attract smart people to the suburbs
•    Society becoming more and more urbanized
•    The further out of a city you get the more you are affected by weakness
•    Demand for multi-family housing and optionality is changing supply / demand characteristics going forward
•    Retail is Darwinian scenario – major malls are taking market share 
•    Becoming “downtowns” of the past and Zell is positive on their future
•    Significant obsolescence in many non-core malls
•    Economics of strip centers – anchors cover interest payments and guys in middle make your profit yet these companies are hit the hardest
•    Retain under a huge threat of e-commerce which will continue to grow
•    Office market not as hot as 2007
•    Use of office space is changing
•    Existing tenants are redoing leases with less square footage than before
•    Not seeing construction which leads to oversupply
•    Hospitality (Chinese in the US is driving hospitality)
•    Expect significant number of tourists from Asia pacific (China especially)
•    Supply is in measure “under constraint”
•    Biggest issue is debt creation at historically low rate – low at 4% being refinanced at 7% - what does that mean?
•    One of the rules of the game is getting as long of a term as possible
•    Pubic market cheap but not significantly – “sharp shooter market” 


Check out the rest of the hedge fund presentations from Invest For Kids Chicago here.