Sam Zell says US economy “doing pretty well,” but cycle “in the ninth inning”

Equity Residential chair riffs on Starwood deal, election and millennials' mating habits at NYU REIT conference

Sam Zell
Sam Zell

In December, Equity Residential chair and real estate investor Sam Zell said he believed there was “a high probability” that the U.S. economy would slip into a recession “in the next 12 months.”

Zell struck a relatively more optimistic tone Wednesday morning at New York University’s annual REIT Symposium — saying that while he thought his prediction was “realistic” at the time, the U.S. economy “at the moment is doing pretty well.”

But there is also global economic uncertainty to account for, and “you have to look at the U.S. as part of a connected and globalized world,” the 74-year-old billionaire said before a crowded audience at The Pierre’s Grand Ballroom in Midtown.

Zell reiterated his belief that “we’re in the ninth inning” of the current economic cycle, but said that the next downturn would be a “significantly milder version” of the previous recession in 2008.

With his usual aplomb, Zell discussed topics ranging from his outlook for the U.S. economy and the current election cycle to why “this whole millennial thing” is overblown.

He was asked about the $39 billion sale of his Equity Office Properties Trust to the Blackstone Group in 2007, which was struck shortly before the onset of the global financial crisis. In the wake of that deal, many market observers credited Zell with having the foresight to predict the market’s downturn.

With Equity Residential recently offloading a 23,000-unit suburban residential portfolio to Barry Sternlicht’s Starwood Capital Group for $5.4 billion, the question was whether Zell was “ringing the bell” once more on the current commercial real estate cycle.

“I didn’t ring the bell the first time, you all heard the bell – that’s a big difference,” Zell said of the Equity Office deal in 2007. “When the price is at a certain level, you absolutely have a responsibility to respond.”

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The deal with Starwood was indicative of Equity Residential’s shift away from suburban properties and toward urban, core markets such as New York City, as well as realizing the value of the assets, he said. “If someone needs a bell to hear that the real estate market is much more frothy nowadays, I’m in the business of selling hearing aids,” the Equity chief added.

He also offered his take on the current political environment and election cycle, calling the current presidential candidates a crop of “idiots” and singling out President Barack Obama as the “number one idiot.”

“I think the country is very polarized, but also geographically polarized,” Zell said, going on to quote the 1976 film “Network.” “You guys are sitting here in New York, and the rest of the country is just mad as hell and they’re not going to take it any more.”

Zell called Donald Trump an “enormous wildcard,” and said he would “have to see whether his campaign becomes any more real” before passing more specific judgment on the GOP frontrunner. “His thesis of, ‘It’s going to be great, trust me’ – I’ve been to that movie.”

Finally, Zell provided colorful insight on the much buzzed-about topic of millenials – noting that while he thinks “this whole millennial thing is a bunch of bullshit,” the generation does shed light on how demographic shifts are changing the way the economy operates.

The “single biggest difference” between the millennial generation and its predecessors, he said, is the “deferral of marriage” that means millenials are not having as many children and have more “disposable income.”

“I am worried about fertility,” Zell opined. “I am concerned that the deferral of marriage leads to less fertility… I’m worried about where the [economic] growth is going to come from.”

But in the end, he added, “millennials are going to get married and have children – maybe less children – and move to the suburbs.”