Sam Zell has billions in dry powder and an economy in turmoil. Is the developer and investor, known to zag when everyone else zigs, planning his next strike?
The brash, often controversial, sometimes vulgar chairman of Equity Group Investments has made his fortune buying up distressed real estate in times of economic uncertainty and upheaval, and the coronavirus pandemic has prompted both. The stage is set for Zell to pounce, according to Crain’s Chicago.
“It’s definitely what the company has been waiting for,” says Jerry Ehlinger of Chicago-based investment firm Heitman. “This is the time to perform.”
With the exception of mobile home parks, Zell has significantly reduced his companies’ exposures to real estate. But prices have been bottoming out in the last few weeks as states have imposed stay at home and shelter in place orders.
Equity Commonwealth, a real estate investment trust that Zell purchased in 2014, has raised about $3.4 billion from sales of about 150 office properties over the last several years. The company now owns just five properties. But that could change, and in the past Zell has referred to himself as a “professional opportunist.”
Its parent company, Equity Group Investments, has also reduced its exposure to real estate in recent years, selling off several billion dollars of properties.
Cash has insulated Equity Commonwealth from the downturn. Its shares are down just 6 percent compared to 25 percent for Zell’s multifamily entity Equity Residential and the same 25 percent for his mobile home entity.
And cash may be exactly what Zell needs if he wants to capitalize on a down market, according to Crain’s. Many real estate pros worry about commercial and residential landlords defaulting on loans if their tenants miss rent payments.
But some lenders may hold off from foreclosing on properties, creating fewer opportunities for investors like Zell who look for properties on the cheap. If borrowers do start to default, the conditions may be right for a buying spree, according to the report. [Crain’s Chicago] — Dennis Lynch