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Zell Sees REIT Mergers as Smaller Landlords Lack Scale

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Billionaire Investor Sam Zell
Billionaire investor Sam Zell, chairman and co-founder of Equity International Inc., speaks during an interview at the Skybridge Alternatives (SALT) conference in Las Vegas, Nevada, on May 9, 2013. Photographer: Jacob Kepler/Bloomberg

Feb. 5 (Bloomberg) -- Billionaire investor Sam Zell, who helped to expand the industry of U.S. real estate investment trusts in the 1990s, said there are too many of the publicly traded property companies in the market.

REITs will consolidate over the next 20 years, Zell said in an interview today on Bloomberg Television’s “In the Loop” with Betty Liu. Those companies with less than a “couple of billion” dollars of value aren’t relevant because they lack scale and don’t provide capital to the property market, he said.

“If you don’t have that size you don’t have liquidity,” Zell said,adding that only about 30 REITs have the “size and scale” to have an impact on the market. Those larger REITs will lead real estate growth in the future, he said.

There are more than 200 publicly traded REITs in the U.S., according to data compiled by Bloomberg. Zell, 72, created companies including Equity Residential, now the largest publicly traded apartment landlord, and Equity Office Properties Trust, an office owner that was sold to Blackstone Group LP near the peak of the buyout boom in 2007 for about $39 billion.

Zell, who remains chairman of Chicago-based Equity Residential and Equity LifeStyle Properties Inc., another REIT he created, said he isn’t concerned that rising interest rates would hurt commercial or residential real estate.

“Interest rates going up will have a slight negative effect, not a catastrophic effect,” he said.

Class Warfare

Zell also said venture capital pioneer Tom Perkins was right in claims made last month that wealthy Americans are being unfairly targeted by critics. Perkins, who drew controversy for comparing treatment of the very rich to the persecution of Jews in Nazi Germany, has apologized for that analogy, though he stood by his message about income inequality.

While Zell said “persecution” isn’t the right way to describe treatment of the top 1 percent of earners, he sees envy of the rich and class warfare as growing problems in America, blaming government regulations for a widening income gap.

“The 1 percent are getting pummeled because it’s politically convenient to do so,” Zell said. People “should not talk about envy of the 1 percent, they should talk about emulating the 1 percent. The 1 percent work harder, the 1 percent are much bigger factors in all forms of our society.”

Market Balance

Zell said that stock markets are rebalancing after a 30 percent gain in the Standard & Poor’s 500 Index last year. The benchmark gauge has fallen 5 percent this year through yesterday and about $3 trillion has been erased from the value of equities worldwide as China’s growth slows, the Federal Reserve scales back debt purchases and anti-government protests spread in emerging markets from Thailand to Ukraine.

“I don’t think declines are ever healthy, but balance is what keeps us in place and when we get out of balance,with subprime loans or whatever, it’s pretty disastrous,” Zell said.

To contact the reporter on this story: Craig Giammona in New York at cgiammona@bloomberg.net

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

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