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The commercial market is “frothy” right now and low interest rates are to blame: Zell
On the resi front, "Supply is the elixir that takes care of bubbles"
The commercial real estate market is getting frothy and low interest rates are to blame for asset inflation and impending oversupply issues, according to billionaire Sam Zell [TRDataCustom].
The low cost of capital has created an imbalance in the economy resulting in asset inflation, he told Bloomberg.
Before the recession, the average cost of capital was 5.6 percent. “5.6 percent versus zero? That creates quite a bit of stir, quite a bit of asset inflation and I think is not healthy,” he said.
As a result, the commercial market is “a little frothy.”
“I think we’re about to have very significant additional supply” on the commercial front, Zell said.
The residential side is in better shape, he said. “We’re building more multi-family housing units this year than we’ve built at any time in the last 25 years. Supply and demand will balance it out,” he said. “Supply is the elixir that takes care of bubbles.” [Bloomberg] — E.B. Solomont