Another Real Estate Crash Looms: Sam Zell Dumps Holdings, Warns "The Fed's Deferred Reality For Too Long"

Tyler Durden's picture

Submitted by Mac Slavo via SHTFPlan.com,

If you haven’t heard yet, median home prices in the United States are on a tear having reached all-time highs in April. To boot, rental prices have gone insane, showing a year-over-year inflationary increase of 8%. On top of that, stock markets are rocketing back to their own all time highs based on the premise that the U.S. economy is seeing healthy growth. By all official accounts, it appears that we’re back on track.

real-estate-easy-money

 

But appearances can be deceiving and highly acclaimed investment guru Sam Zell isn’t buying the hype. In fact, he’s taking this opportunity to sell… in a very big way.

Wolf Richter explains:

And he has been selling. Back in 2007, he once again proved his sense of market timing. As the commercial property bubble was already teetering, he sold Equity Office Properties Trust to Blackstone for $23 billion, not including $16 billion in debt. Then prices crashed, and commercial property defaults hit the banks. As the dust was settling at the end of the Great Recession, he went on a shopping spree.

 

Now he’s selling again, unloading multifamily properties at peak prices on a massive scale just when a multi-year construction boom is flooding the market with new supply.

 

So when Sam Zell speaks, our ears perk up.

 

Read the full report at Wolf Street

In a recent interview with CNBC Zell noted that zero interest rate policies are removing the risk of borrowing, making it easy for big banks and finance companies to keep pushing supply onto the market.

Easy credit. What could possibly go wrong?

A lot, according to Zell:

 

“Overall we’ve come off this extraordinary period of liquidity and this extraordinary period of low interest rates… I think we’re unlikely to see a repeat of that going forward, and I think we’re going to see more supply in what had been pretty tight markets.”

 

 

“In the most simplistic terminology, I would ask you the question, if something is free, is it valued? Is it appropriately risked?”

 

“We have distorted markets. Maybe we have bubbles.”

 

 

“The problem is I think the Fed should have raised interest rates two years ago, and therefore today would be able to make a much more rational decision as to what to do. The problem is that they’ve so deferred reality for so long that I think they have a serious credibility problem if they don’t raise rates.”

Everything seems to be booming again – easy money, easy lending, rising prices, and a bread and circused populous.

Never mind the nearly 50 million Americans on food stamps, the six million millennials living in their parents’ basements, or the massive spike in business debt delinquencies.

Should Americans be preparing for another collapse?

Probably not, because despite all of the market distortions, there is really no need for concern. This time it really is different.

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38BWD22's picture

 

 

There is a lot to be said for cashing in profits.  Zell appears to have a great record of detecting when prices have gotten too high, and to take his profits.

I am not in a position to be a "Sam Zell".  But, we can "walk in the footsteps of Giants" (borrowing from Another and FOFOA).  If a "Giant" has a big position in an investment we also own, that Giant is worth watching.

I would not want to be too real estate heavy now, that would seem to be very perilous.

 

Bay of Pigs's picture

The housing bubble we see on the West coast of the US is in another mania stage. Chinese money laundering is a key driver in some of these markets. Vancouver, Victoria, Seattle, Portland, SF, etc...are all totally out of control and ready to burst.

There are going to be a lot of bagholders again.

NidStyles's picture

Naw, I want to burst once a few more people I detest buy into that market.

847328_3527's picture

Millennials aren't buying homes right now -- what if they never do?

http://www.msn.com/en-us/money/realestate/millennials-arent-buying-homes-right-now-what-if-they-never-do/ar-BBtydIc?li=BBnbfcN

 

They have figured out they must stay light on their feet be ready to move for a new job either here or abroad. Almost every friend I graduated with eventually left the city to move elsewhere for a better job/pay/lifestyle. Those who bought a house were screwed.

reader2010's picture

If American Millennials don't, the Chinese counterpart will come and buy. Dont worry.

HenryHall's picture

War changes everything. There hasn't been a big war on American soil for a long time. But it's coming, Killary will make sure of that.

Oldwood's picture

Everything "depends"....on timing. The problem is, we really don't know how long this will  go on. For most of us, it has far surpassed our expectations already. For those postponing buying a home, thinking the prices will fall,, they are only seeing prices continue to rise. A home is something of a necessity, not an investment hedge. It only becomes an investment when you place a bet on it, over leveraged and betting the market rises while you can still sell. For most people renting, they are just watching rents rise, and even if the market falls, there will still be a demand for housing and no one will be able to get a loan to buy a house, no matter how cheap it is.

For me the rule is...buy what you can afford...in bad times, not good.

I bought my commercial building in 2000. It went up in value till 2008, and then fell back to near what I paid. Now its back up again to almost double, but the only thing that matters now is...ITS PAID FOR.

This should be our goal...to be secure in our lives by  removing as much leverage off from it as possible. It will never be completely as there will be taxes and insurance, but renters will pay all that and more. The problem for most is that they want more than they can pay, and many times that's what rent offers...short term prosperity for long term debt....and rent IS debt.

sun tzu's picture

You don't understand the difference between an expense and a liability. You can cut expenses to zero. You can't cut a liability unless you file bankruptcy. 

What if you bought that building in the rust belt or Detroit? Is it still an asset when nobody wants to rent it?

At least you bought in bad times. Some of the permabulls claim it's always a good time to buy. Even after the last housing bust just a few years ago, we're starting to hear the same shit about buy now or be priced out forever and there's never been a better time to buy. Makes me want to crack their skulls with a bat

Oldwood's picture

So the need for shelter is NOT a liability?

I know well the risks of buying, I'm simply suggesting it "depends"....or lots of variables. Hell no I wouldn't buy in any of these hot spots, but in other areas, if the deal is good and you are buying within your means...everyone needs a home....and everyone who has a business that has equipment needs a building.

But, if our plan is to live in a cave on berries and critters, then sure...why bother.

OldPhart's picture

Off topic...but I'm awed.

Yesterday I was sitting with a friend who prospects.  He's got a container of black shit, what I always considered iron ore, and I casually asked why he had it.  He said it was magnetite and gold was mixed into it.  Magnetite was an indicator of gold in the area.

I told him, hell, I know where's there's piles of that shit.  And this morning I took him out to one of my old playgrounds.  As I led him up this ravine he told me that we wanted to find a place where the sand met the bedrock.  I told him the only rock I knew of was a bit further up.  We got to three points where he got excited.  And we talked of going to get the tools and shit to come back.

As we went down the hill, I told him there was another gully about a half mile away that had all kinds of colors in the rocks.  He stopped and said that's another sign of gold.  So I took him over that way.  And he stopped and started digging.

In a third of a five gallon bucket of sand we wound up with about a half ounce of gold dust, four flakes and a tiny nugget.  And discovered a gold vein...in less than twenty minutes.  This is a totally unknown site, it's not known for gold, and in all my years I've never seen anyone prospecting the area.  Plenty of dirt bikes and shit, but no prospecting.

My friends, I've actually discovered a gold mine.  If I'd only known what to look for as a kid...jesus, I can't believe it.

And now that I know what I'm looking for, I know of five other locations in the area.

Un.fucking.believable.

My friend and I are both still in a bit of shock.

When we uncovered the vein, he just froze...and muttered 'the motherlode'.  That's a vein!

I tell my stories, and I realize that most sound like bullshit, but they're all true, with a twist or two sometimes.

And in this instance, because I literally walked miles around the desert back when it was empty, I observed things.  And now, forty years later, 'I know a place like that' turned into literal gold.

Yes, wife is unimpressed, she has no clue...

401K of Dooom's picture

Uh, can I contribute to your enterprise?  To whom do I send the check to?

OldPhart's picture

Sorry, not ready for investors at this time.

We're still trying to wrap our shit around the idea.

Yes We Can. But Lets Not.'s picture

Fascinating.  Hope you'll keep us updated.

NoDebt's picture

If you would kindly send me your GPS coordinates, I'll be right there.

38BWD22's picture

 

 

Congratulations!  May you mine what's yours.

Yes, please do let us know occasonally how it goes.

People are finding stuff and stuff.......

Escrava Isaura's picture

 

 

That we live in a constant bubble has been established long ago. Sam Zell’s opinion. Who cares.

The question is; will The Fed allow a correction before the next president take office?

I doubt they would. This “house of cards” are too unstable for such shock. And I am not referring to real estate.

 

By the way: Most people should be renting, in my view. Easy to relocate, easy to change jobs within the city, and easy in downsizing.

 

Bay of Pigs's picture

The FED engineers booms and busts. You left out the bust part. And Bush was still in office during the last bust in 2008 and it happened before Obama was elected in Nov. and took office in Jan. 2009.

MalteseFalcon's picture

Normally I would expect Obama to be the fall guy.

These kinds of shenanigans are part of the job description.

The new president starts clean.  The hopium pipe is refilled for the suckers

However, I believe they will hand Trump the turd instead.

Instead of the "new Hitler" the media creeps will call Trump the "new Hoover". 

Will the suckers lap it up?

Dr. Spin's picture

Good point Falcon, the establishment and the MSM certainly hate and fear him enough, but I think that could work to his advantage.  If I were Trump, I would be going full out warning everybody that the fascist's ponzi is out of gas.  That way if (when) he takes office, he can get right to work undoing this labyrinth of nonsense.  If he doesn't issue fair warning, then he will be busy trying to maintain cred.  Give the plebs the bad news up front and then show them where the hope lies.

<fantasy off>

;-D    

willwork4food's picture

Many people don't remember the asshole Bush2 was encouraging the bank bailout in 2008. Fucking dick.

ThrownOffZHTwice's picture
ThrownOffZHTwice (not verified) Bay of Pigs May 29, 2016 4:39 PM

I've seen a lot of "For Sale" signs out in Bay Area just recently.  People are realizing we are near the top of the mania and are selling and moving out of California.  Smart.  Leave the chinks holding the bag.

in4mayshun's picture

Silicon Valley is bleeding tech jobs to more affordable areas like North Sacramento also. Even insanely over funded tech shops are throwing in the towel on the Bay Area's ludicrous property prices.

opport.knocks's picture

"Leave the chinks holding the bag." - that is not what happens to high end real estate in a Great Depression.

Here in Toronto, during the depression a lot of the mansions built during the roaring 20s got carved up into rooming houses. While many got re-gentrified 60 or 70 years later, a lot of formerly good neighbourhoods did not.

And that is exactly what the Chinese "bag holders" will do. 

The Real Tony's picture

In the end Toronto will end up just like Agincourt, the chinks will in fact be the bag holders. Toronto is a hellhole of a city. This is always the end result when you pay far too much for something.

U4 eee aaa's picture

That is the problem with being an elephant. When they want to get out of the water, everyone knows it. Thus, when they get out of the water it has to be for a pretty good reason.

The only downside is if they get out they can afford to wait a long time to get back in

The elephants are on the move

tarabel's picture

 

 

Tht's the whole point of dark pools. You no longer know what their moves are-- other than the ones they want you to see.

Dark pools = Stock Exchange Apartheid.

GRDguy's picture

Interesting how rats, snakes and cockroaches prefer "dark" places; dark pools (finance), dark money (politics) etc.

Dr. Spin's picture

Interesting how rats, snakes, cockroaches, and governments prefer "dark" places; dark pools (finance), dark money (politics) etc.

FTFY,

;-D   

shovelhead's picture

There it is in the most simple terms possible.

The #2 intelligence target in the world (The President is #1) would be the US Sec. State communications and the Beast made it easy enough for any 12 year old hacker to read.

Every intel office on the planet was reading America's most sensitive information.

Nice work Hillary.

zero_wedge's picture

<--------------  It feels like 2007 (only way worse) all over again.

<--------------  Everything is awesome.

lincolnsteffens's picture

First Rockefellers rumored to have sold 80% of their oil position. Now Zell on a sell of his RE holdings. I just hope the markets hold up a couple of more weeks. I've had the return of interest (no sales yet) of my inventory of expensive antiques. If the markets plunge the interest will evaporate.

On the other hand, if the markets implode I am positioned to profit in Federal Reserve Notes.

zero_wedge's picture

So if the rich guys are selling out, what are they holding? FRNs? Gold? Beanie babies?

y3maxx's picture

"So if the rich guys are selling out, what are they holding? FRNs? Gold? Beanie babies?"

 

...Thats' the $64 K question...

chunga's picture

The one's at the very top of the ponzi want it all.

ThrownOffZHTwice's picture
ThrownOffZHTwice (not verified) chunga May 29, 2016 4:35 PM

Last ones out get nothing.

Oldwood's picture

I would guess that a lot is going into cash, and the Fed sees the almighty dollar as the symbol of their power. Yes they do want inflation, but possibly the will flush the dollar into some other "new" secure digital currency, herding all of the cash back into capture.

I have no doubt that there is no move available to us that hasn't been anticipated and therefore rendered to their advantage.

We either go along and take our "shearing" or stand apart and suffer something possibly far worse. Our principles will likely be the most expensive asset we hold, and also likely to be the most heavily depreciated.

Southside Stacker's picture

Going into cash?  You must be kidding.  I am holding over 200k in cash--not a good feeling as I contemplate 1) being bailed in when the stuff hits the fan and 2) watching the value of my wealth leak through inflation.  This is a hot potato and it is likely I will move more heavlily into precious metals.  Cash is trash.

Oldwood's picture

None of us feel good about it. We have been herded to this position and it may well be ultimately a kill pen, but alternatives are not clear. Gold, real estate, about anything tangible has an equally tangible risk. After all our problem ultimately is NOT the economy but our government.....a government which believes it can legally act arbitrarily and punitively whenever it feels the need. Every asset can be taxed or devalued by their hands,without any regard to conventions of law or prior accepted practices or history. THERE ARE NO RULES and while economic natural law will dominate in the end, the government distortions mask how and when the reconciliation will occur and with what specific destruction.

reader2010's picture

So if the rich guys are selling out, what are they holding? FRNs? Gold? Beanie babies?

-------------

They'll hold on to their serfs. As long as serfs need to eat, sleep, shit and fuck (& use their ifones), they're golden.

Omen IV's picture

Miami Beach - Collins Ave - has stopped selling with new projects still being completed every week

U4 eee aaa's picture

call me when Vancouver crashes. That will be the pit of the crisis

Oldwood's picture

Everything will be fine until we can longer accept Chinese currency exchanges. They seem to be able to print more that our criminals can manage, so it might actually become a bit too obvious. I wonder what the digital equivalence is to wet ink?

petar's picture

It is only 2005, still plenty of time.