Zell Says Top-Tier Real Estate to Fill at Lower Rents

Billionaire property investor Sam Zell said high-quality buildings will fill at lower rents over the next year and a half amid a slump in commercial real estate construction.

“Over the next 18 months I think we’re going to see little or no new construction and we’re going to see all the institutional-quality assets be full,” Zell said today at the Real Estate Briefing hosted by Bloomberg Link in New York. “The bad news is they’re going to be full at 20 or 30 percent rates less than the peak.”

Zell, the chairman of Chicago-based Equity Residential, sold his Equity Office Properties Trust in 2007 for $39 billion as the commercial real estate market was peaking. Property prices have plunged as credit contracted and the economic slump boosted the unemployment rate and employers cut jobs.

Zell said demand is strong among investors for fully leased buildings, and that there is little distressed commercial real estate on the market as lenders extend mortgage terms. Demand for such properties is outstripping supply, he said.

For fully occupied buildings, demand from investors is similar to what it was at the peak of the market, with bidding competitive for those properties, Zell said.

Zell, 69, said demand for multifamily housing is strong and occupancies are high. Equity Residential (EQR) is the largest publicly traded apartment landlord.

Tribune Investment

Zell said he doesn’t regret his investment in Tribune Co., which filed for bankruptcy in 2008. In 2007, Zell and other investors took the media company private in a leveraged buyout. Zell said that, in the first quarter after the takeover, revenue fell 25 percent.

“The original decision I made, which was like every decision I make on an investment, is a risk-reward decision,” Zell said. “The risk and the reward were appropriate.”

Zell, through Equity International, which he co-founded with Gary Garrabrant in 1999, has invested in real estate-related companies around the world, including Brazil.

To contact the reporters on this story: Brian Louis in Chicago at blouis1@bloomberg.net; Betty Liu in New York at bliu17@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.

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