"This Is Not A Time To Buy Anything" - Sam Zell Warns Retail Real Estate Market Is A "Falling Knife"

Tyler Durden's picture

CNBC's cheerleading staff had a very difficult time finding the silver lining in retail investing this morning as they relentlessly pressed Sam Zell on the value of commercial real estate.  Asked to offer up his thoughts on where retail real estate is headed over the next five years, Zell highlighted the significant excess inventory in the U.S., 4-5x more per capita than Europe, and said investing in the space right now is like catching a "falling knife."

"Like a falling knife.  You start with the fact that the U.S. has 4 or 5 times the amount of square footage per person of retail as anywhere else in the world.  So we start with an enourmously large inventory of retail."

 

"3 years ago your could buy an 8% mall...you could buy a B-mall and it was probably an 8% cap rate.  The same mall, 3 years later, is now selling at 13% and 14%.  So you've seen enourmous erosion of value."

 

"When the knife falls there's going to be plenty of opportunities for people to step up and say 'what are alternate uses?'"

Pressed on whether now just might be the time to take a contrarian view on the collapsing retail space, Zell again was unable to satiate the desires for positive news from his eager hosts.

"An area that's in this much disarray, with so many weak players, is not an area where I would want to deploy capital at this time.  And I'm generally a contrarian but I think what we're dealing with here is very significant."

 

Of course, things only went from bad to worse for the CNBC hosts when Zell offered up some positive commentary on Trump's presidency. Per CNBC:

Corporate America is willing to invest money on a longer-term basis under President Donald Trump than the previous "anti-business administration" of Barack Obama, real estate mogul Sam Zell told CNBC on Tuesday.

 

"Bluntly, the only way I can square anything is I focus on what gets done, not what's said," the billionaire said on "Squawk Box." "On a measure of what's gotten done, I believe there's been very significant change since Trump was elected in November, and change that is positive."

 

Zell points to deregulation and promises of tax cuts and massive infrastructure spending as major positives for business.

 

"Just think that all of a sudden there are no industries that are pinata[s] of the president," Zell said, referring as an example to what he called Obama's campaign against fossil fuels.

 

"I'm more optimistic than I was six months ago. But I'm not ready to party," Zell told CNBC on Tuesday, adding the current business environment is not one of buy anything and win. Investors need to pick carefully, he added.

 

Meanwhile, the most shocking part of the interview segments above is that CNBC didn't encounter any "technical difficulties" as Zell offered up his positive comments on the Trump presidency while taking a shot a Obama.

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ParkAveFlasher's picture

Zell looks like he just stepped out of a japanime

 

junction's picture

Look at what Zell did to the Tribune Company, buying it with almost no money down for $8.2 billion in April 2007, adding $5 billion of debt by December 2007 and then, in December 2008, filing for bankruptcy.  Zell continued to run the company and hire friends of his, sexual predators all, to manage operations.  Unlike Conrad Black, who was indicted on bogus charges to steal the Chicago Sun-Times from his control, Bush's crooked prosecutors left Zell alone.  

auricle's picture

Sam the scam is looking to run off potential buyers as he looks deploy capital at the end of the cheap money cycle. I hate listening to these insiders. 

Escrava Isaura's picture

How about Trumps’ casino?

The bond holders lost $1.5 billion dollars and more than a thousand workers lost their health and pension benefits.

All the while Trump made $39 million dollars.

 

Paul Kersey's picture

How about Trumps’ casino?

The bond holders lost $1.5 billion dollars"

They didn't lose $1.5 billion, they paid $1.5 billion in tuition to Trump University. That was just the Donald's way of saying, "Trump-u, suckers".

Miss Expectations's picture

Ha!  And how exactly did Zell get control of the Tribune Company?  Another very twisted tale.  It starts in Yugoslavia, where 2 Star General David L. Grange fucks up when 3 of his soldiers are captured.  This was a big fing international story.  Who shows up in Kosovo to get the prisoners freed?  Illinois Governor Rod Blagojevich and Jesse Jackson.  Then Bill Clinton shows up for photo ops.  Grange "retires" and almost immediately (didn't get his 3rd star) and gets a job running the McCormick Foundation in Chicago, which owns a controlling interest in the Tribune Company.  The Tribune stock endowment for the establishment of the McCorminck Foundation were NOT allowed to be sold, but Grange found a way and the stock was sold to Zell.  Then, Grange moves on and gets a job running PPD, a drug testing company, for which he has NO qualifications.  Then he sets up his own company, Osprey Global Solutions, primarily a group of mercenaries.  Where does their name pop up?  In Libya as a military contractor that Sidney Blumenthal works with and promotes their services to Secretary of State Hillary Clinton in the destruction of Libya and the probably the murder to Kadaffi.

wisehiney's picture

It makes all the sense in the world if you are buying it with the banks money.

May as well make it a dozen.

yogibear's picture

Like locust.

Leaving the financial landscape barren after they take everything.

buzzsaw99's picture

deploy capital. lol

he makes it sound so noble.

Squid Viscous's picture

Sam what's with the prison pussy, trying to look tough?

you're like 5'2 and 75 years old...lol

directaction's picture

Maybe he’s about to move into one.

Bay of Pigs's picture

He's correct. CRE is going to implode all across the country. I've seen some CRE locations in Kihei, Maui sit vacant for 15 years now. This is where a bar and a former Dennys location were located across from Kamaole II Beach in a strip mall. This is prime real estate but it's priced way too fucking high. The "market" can't bear it, so it sits empty year after year.

Stormtrooper's picture

Invite the Japs back.  They're investing in everything.  Oh, wait, that was 25 years ago.  Never mind.  Invite the Chinese back.  They're investing in everything.  Oh, wait.  Never mind.

Bay of Pigs's picture

The Japs still own this property. I looked into it a few times as I wanted to have a business there (BoP's Bar n Grill ;). They wanted $11K a month on the lease.

It's insane.

WakeUpPeeeeeople's picture

Didn't know about that Dennys closing. But i bet Wally World and Home Despot are still open on the other side of the island.

hawaiian waverider's picture

Yes, and a new target on Maui.  Kmart, Borders and Sport Authority closed, Lowes moved to bigger location.

Omen IV's picture

Even Madison Ave - 70's - lots of vacancies

hawaiian waverider's picture

Know that area well but Hawaii landlords such as Weingarten have some perverse desire to never lower rents so stuff just stays vacant.  CRE is all different as far as use goes and location but yes, not enough new demand for given sq. ft available and prices high as cap rates are rarely over 6% from what I see.

Anteater's picture

Just did an appraisal at W on Big Island, the manager

of the very large senior complex said 10% of the units

were vacant and had been for over a year. Everyone is

trying to find a way to sell, without spooking the price.

They haven't had a new buyer in 18 months, lol, with

the constant daily choking volcanic 'vog'. You can have

tears in your eyes and gasping for breath, and they'll

claim, 'Oh, looks like it might rain today." MAGA!!

johnjkiii's picture

Zell is a notorious fibber. He's probably ready to pull the trigger and is talking against his book.

 

mjcarr51's picture

Not so fast. He talked similarly in 2005 and then (from Wikipedia):

 

"In 2006, the Blackstone Group announced the purchase of Zell's Equity Office Properties Trust for $36 billion,[11] which was the largest leveraged buyout in history at the time."

 

Pretty good sale in 2006.

GoldenDonuts's picture

You either live in a large metro city or have never driven around you home town.  If you had you would see a lot of empty commercial space.

Father ¢hristmas's picture

It's a replica of Chinese ghost cities, but scaled down in proportion to American populations.

MrSteve's picture

Johnnyboy, how can anyone be so misinformed? Zell has repeatedly sold out at the top, most recently out of the Chicago Tribune holdings..He and his team of very experienced folks know real estate and values so if he is telling you to walk away, start stepping now. Survival now means better to be a year too soon than a day too late.

BarkingCat's picture

When he smells a top, does he publicize it?

it would seem logical that he would not say anything until he positioned himself acording to his prediction. 

After that, it makes perfect sense to advertise it because he is ready to buy after the drop.

 

I am sure all this is somewhat local with the caveat that most mall space is under pressure - lots of shopping has moved to the internet.

 

I can tell you that in Seattle, there are not any visible vacancies.  

Las Vegas is doing much better too. In 2008 and years following it, that city had tons of empty spaces. Entire strip malls were sitting empty.

Not anymore. 

In a small city in Massachusetts where my mom lives, there are empty big spaces that were vacated by closure of -KMart and regional grocery stores. 

There are just too many of these buildings.

Their growth has outpaced population growth by a large margin. 

Omen IV's picture

Part true. - but the discretionary income isn't there - even high end can't cover the overhead with the meager volume

Entire system is visibly dieing

idontcare's picture

SKT somewhere between $5-$10 might be a buy; afterall, the well off housewives need to do something to blow off steam even after it all goes to hell for everyone else.

BarkingCat's picture

They will bliw off steam like always - by blowing the pool guy, the tennis pro, personal trainer or the gardener. 

Father ¢hristmas's picture

"promises of tax cuts and massive infrastructure spending"

*glances at the camera like Frank Underwood*

DEMIZEN's picture

btfd zell, nothing is coming down.

San Pedro's picture

Defunct shopping malls are being eyed by medical establishments for out clinics. Most have ample parking and street level entrance for wheel chairs and walkers. PT / dialysis / chemo and other "out clinic" med maintenance are ideal for converted mall infrastructure. 

ceilidh_trail's picture

There's only so much demand for these type clinics. Also, need plumbing/electrical upgrades which means redoing slabs... Drug/Detox clinics, now you're talking! A few desks and needle boxes and you're all set. You could call it Zombie World.

Bigly's picture

They can add more chemicals to the tap water. Dialysis will boom...

venturen's picture

put bars on the windows...and make them prisons

helloimjohnnycat's picture

Put bars on all the bars, call 'em hospitals, and let the drunks go crazy.

" Come on in and stay for a while. "

 

Zell must be some Rothschild's lil' bastard.

Obviously, heebie fems have an auxiliary duct running anus to egg house.

Very surprised no one here mentions the biological anomaly.

Cartoonists are fond of breaking the fourth wall.

When joos copulate, a similar deal is said to happen, but no, there's an actual passage way for wandering sperm.

Stan Smith's picture

    Price Per Square foot needs to drop almost everywhere,  and it's more exaggerated on the coasts.    There's just to much of it out there.   By an huge order.    The problem is, because rates have been so low the past decade,  the incentive for builders to throw it up anyway has been there.    I'd equate it to China's industrial production.    Them making it has little connection to the ability to sell it and use it.

    One of the larger commercial areas in St. Louis County is near me.    It's occupancy is good,  but they just lost Gander Mountain and Sports Authority -- bye bye bankruptcy.    Pottery Barn has taken one of those spots.    My guess is the other is going to stay empty for awhile.    They are still pedaling out lots as well.    A change in expectations is due soon I'd say.

NoWayJose's picture

Don’t buy anything... so that I can buy it cheaper when the price falls further...

Ignorance is bliss's picture

It will be a race to see which asset falls faster...real estate or Dollars.

FBaggins's picture

What if the dollar crashes as some are predicting?  Is this not the time to use your dollars to buy something which will maintain its value. If so what is it? Gold has gone up disproportionate to silver since the 1970’s because of demand not because of any intrinsic value. If the economy is going to take a dive could it be that even gold will be considered inflated and lose value accordingly? 

 

 

uhland62's picture

Could well be so. And in a crisis situation you still have to buy bread.

 

Will the baker take gold? And what about those rather credible sources in the book Gold Warriors that state most gold certificates even from the banks will be declared fake when you want to redeem your asset? I don't think the dollar will crash, eroded yes. Those at the switches will ensure there are no sudden shocks. The Chinese even have a name for it, gradualism, but they don't do the steering, which will come from many angles in small steps..  

King of Ruperts Land's picture

" use your dollars to buy something ". Ha! That is for suckers. Use use unlimited made up Fed Dollars.

Also, don't fool yourself. Gold has intrinsic value do to its characteristics and its deep golden luster which has a real psychological effect on men and woman. Men lust and kill for gold. It has excellent value in its use in coinage of real money and to adorn kings and beautiful women.

Let it Go's picture

I respect the opinion of Sam Zell and think the coming years will not be for the meek. Having said that, commercial real estate is not a market you can get in to or out of rapidly so slowly buying when deals arrive is a good idea.

Today real estate may be the "cleanest dirty shirt" in our closet of investments options. The fact that it is real and tangible is its greatest strength rather than the argument of guaranteed strong demand going forward. When wisely purchased real estate does have strong merit.

When things go well real estate has the potential to produce a stream of steady and growing income for decades. In addition, replacement cost has soared in recent years and are not expected to drop going forward. More about this complicated market in the article below.

 http://brucewilds.blogspot.com/2017/04/a-case-for-stronger-commercial-real.html

 

Anteater's picture

Yeah, if you don't mind $5,000 in property taxes, and

remodeling after your deadbeat tenants ruin the place.

I looked at $275,000 2BR rambler, on stilts, from 1931.

The realtor said, "Have you got cash? I don't have time."

I could tell you how to burn it for insurance, but that

would be conspiracy to commit a felony. You'll learn.

You can get a new 2BR condo in SEAsia for $27,500,

have it fully rented out, and ready for you to bug out.

2018 will make 2008 look like Sunday School picnic.

turkey george palmer's picture

2008 was nothing. A little wash out. We in this country should prepare to watch children going hungry and roaming homeless turning up in the front yard

Build the fucking wall around your land cause you are about to fight to survive bitches

JesseL's picture

If I were still alive, I would short this market.

Blue Steel 309's picture

I am not sure that I should follow financial advice given freely to the goyim by the Self-Chosenites.