Sam Zell on why interest rates need a “shot clock”

Equity Residential chief says the RE cycle is playing extra innings

Apr.April 06, 2017 04:30 PM

Sam Zell (Credit: Getty Images)

From TRD New York: Sam Zell is tired of waiting for Godot. Raise those damn interest rates already, he says.

“The kinds of interest rates we’ve had are like basketball without a shot clock,” the billionaire chairman of Equity Group Investments said Thursday. “There’s no sense of urgency. There’s no penalty in deferring making a decision.”

In a wide-ranging talk at the annual REIT symposium hosted by NYU Schack, Zell explained why he’s bullish on foreign investment but doesn’t have much hope for an infrastructure boom in the U.S., despite the Trump administration’s appointments of Richard LeFrak and Steven Roth to oversee efforts.

“The only way we’re going to get anything done on infrastructure is if we’re able to superimpose the benefits and objectives of the whole country over those of the tree-huggers,” he said, referring to the scores of environmental studies that come hand-in-hand with major building projects. “The reality is, saving the trees when the rest of society can’t function — or you can’t cross the bridge to get to the trees — is, I don’t think, a winning formula.”

Having predicted last year that the country could be on the cusp of a slowdown, Zell said he’s changed his mind thanks to the Trump administration’s ability to boost investor confidence.

“The suppression of growth over the last eight years might mean we play extra innings this time,” he said. “Corporate America has more capital today… there’s a lot of dry powder.”

Zell also believes we don’t have an oversupply of housing in the U.S. market. Between 1985 and 2005, he said, there were 1 million single-family houses built each year, a number that plummeted to 400,000 during the worst of the recession in 2009. Now, the number is around 600,000.

“You’d think after eight years of recovery, and with all this ‘new demand’ that you’d at least be back to where you were in 2005 [but] that’s not the case,” he said.

As for Chinese investment in the U.S., there’s no question that investors from there are itching to deploy capital abroad. HNA Property Group, for one, has been on a tear, agreeing to buy 245 Park Avenue for $2.2 billion and investing two large-scale Tishman Speyer projects in Hudson Yards and Downtown Brooklyn.

But Zell says he wouldn’t be surprised if investors make “poor” decisions like Japanese investors did in the 1980s (The Real Deal‘s Konrad Putzier brought up similar questions last week).

“Foreign investors have a very bad habit of believing that the circumstances in their country are a precursor of what’s going to happen in other places,” Zell said, when, in fact, “you have different systems in different places.”

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