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00:00Sam Zell. Warren Buffett isn't buying anything yet. Are you . Now I'm just watching what's going on and that much go on . What do you see . I I don't know the answer yet. Eric I just. All I know is that despite the fact that we've been locked down for six or seven weeks there's very little activity very little transactional activity . Very little opportunity to do anything. I think everybody is in kind of you know deer in the headlights kind of stature at the moment. And that at least now so far I'm just sitting here watching and we're not seeing the happening. Sam what do you think that is. Is it. Is it because prices aren't low enough yet . Oh I think rather than referring to it as prices are low enough . I think there's been very little opportunity at price discovery . My guess is that those sellers that wanted to sell still remember the prices that were available seven or eight weeks ago. The buyers are looking at a very different world and expecting to see significant discounts where we were seven weeks ago. And when you've got that big spread nothing happens. And I think that's an accurate description. What about you. What do you need to see before you feel motivated inclined even excited about putting capital to work . Well I think we're all faced with an extraordinary level of uncertainty uncertainty in how the reopening will go uncertain as to when they reopen the will happen uncertain about how people will respond. How soon will anybody get on an airplane. How soon will everybody stay in a hotel. How soon will anybody go to a mall . The fact that these places may be open doesn't necessarily mean that they'll be doing business. And so I think with that level of uncertainty rather than people taking action I think everybody is sitting on the sidelines waiting for more clarification. Sam you've been through a few cycles. Every cycle ends with a crisis of sorts and then questions uncertainty . How does this level of uncertainty compare with past cycles . Oh I don't think there's any comparison . I mean in past cycles have all been sending in shock . You know whether it was the Great Recession of 0 0 7 0 8 No. 9. The question was you know when do we get the initial recovery . You go back into 73 74 81 90. They were all financial scenarios overbuilding other challenges. But this is the challenge that we have no frame of reference for number one. Number two the scale of it is is just enormous. I mean I don't think we've ever even during the Great Recession of 2 of 7 8 9 there were parts of the world that we're doing fine and other parts of the world that we're suffering certainly in a number of the emerging markets and through that whole period very strongly . I think in this particular environment that we're in right now . But the problem is universal in that we just don't have any. We don't have any frame of reference. We don't have any history that we can go back to and say aha well this is the way they'll be. And we're in effect. Somebody can take a position one way or the other as to which way to leave. People are taking that position amazingly every day. There may not be enough price discovery for the kinds of investments you want to make but there's still plenty of liquidity in public markets. Sam given what you just describe the world being in uncharted territory I'll paraphrase for you no frame of reference. As you said the public market valuations make sense to you. But I'm sure that the mark market valuations actually reflect the reality of what's going on. I you know I think that the public markets have historically been a reflection on the expectations of the future . So we have a lot of people betting one way or the other in the future. They're also betting generally from a diminished perspective. So the market went down 25 or 30 percent. It's come back maybe half of that. But I just don't think that anybody has any certainty. And that's why we're seeing such an incredible volatility. I mean we've seen volatility that you've never seen before. We've seen that thousand points in the Dow in one day. You know backward in the Dow up 500 down 500. We don't have any new reference frame of reference for that kind of volatility . And so as a result you know it's like it's like little bit like the game musical chairs. You know everybody in the market is knows that that you know the music is playing. And while the music is playing they got to walk around . But they also know that there's going to be one less share when the music stops. And therefore their focus is all on you know how do I make sure I get one of those shares . I don't think that's so dissimilar from where I think people who are involved in the market are actually making decisions . So even though the future is as unpredictable as it's ever been before Sam . Every investor has to tilt one way or the other tilt optimistic optimistic pessimistic tilt bullish till bearish. You have to have a view of sorts on how long the pandemic lasts. Do you know how it changes human behavior right on your real life . I'm not sure I accept the premise that you're putting out OK . Matter of fact I think that what we're seeing right now is the fact that nobody is doing anything. Nobody is taking a view . That's why there are no transactions. We can't confuse the stock market which is a flow back and forth of thousands or millions of people's betting to what's going on in the real world. In the real world . Transactions aren't getting done in the real world . Transactions are getting called off in the real world. People are saying you know I don't know. So therefore I'm not going to do this . And so I think that you know I think everybody has to make a bet . And I think a lot of people are not making bets. And that's of course contributing to the uncertainty that I described . Sam do you think we'll get back to what people would call normal life . And if not what kinds of changes do you think we'll see in habits in consumer behavior for example . Well I think that in the near term . I think I'd probably find the near term is the next . Two to four years . I think we'll all see a lot of changes. I think you know the way office spaces are laid out with people currently sitting on top of each other . I don't think that's likely to keep going . I think that we're likely to see events social events whether it the baseball games or football games or dances or whatever . I think we're going to see you know more social distancing than we've been accustomed to. I think if we end up with a period of time know where people in confidence that we quote quote unquote beat the deal then I think we'll slowly start to recreate the life that we previously had. But I don't see any any scenario where you know come Monday morning everybody is going to go back to where they were before . You know I think that you know this has been an extraordinary shock to our culture and shock to our system and shock to the world. And that the world is is is trying to figure out what to do. And I don't think anybody really knows yet . Sam how does an economy function. How does this a society for that matter function on the basis of what you just described before potentially living with social distancing for years and the open plan offices that we've gotten used to are a thing of the past. And baseball games as you say are a thing of the past and go into the bar as a thing of the past and and and you know convenience easy cheap access to everything from food to travel you know kind of goes out the window at least under the scenario that you've painted. How do things work. How does anybody pay for that. Well first of all I think you're taking what I said and expanding it a little beyond what I said. I might have done that. That's right. You went from one end to the other. And I'm saying is that everybody's activities going forward will be effected by what we've all been through. So maybe if a restaurant has one hundred and fifty seats as it's approved by the Health Department maybe it opens at twenty five percent and then it goes to 30 and then it goes to 40. And then over a period of time eventually it's back to 100 in the same manner. And I think it's likely that in sporting events we'll start out with less density than we previously had before. I think we'll start out with less density in the bars than we had before. And then slowly as people's confidence grows so too will we move more toward wherever we were before . And in a number of cases that you've just cited those business models survived on volume and thin margins. What. Business models aren't viable any longer. In a world where we still have to be you know if not six feet apart or a few feet apart. Well I don't know. I mean I imagine there are lots of them. But let's stick with the simple is the airlines. The middle seat . How soon are you going to sit in the middle seat on an airplane . How many airlines with the kind of pricing that we have in the airline business will survive if they can't sell the middle seat Ryanair which is I think the largest discount airline in Europe already announced that if the middle seat is no longer available they couldn't survive economically. So I think that there is a lot of businesses where you know we've democratized it to the point where you know it's real density has been created maybe more density then that is good for us. And maybe we need to pay you know 20 percent or more for an airline ticket and not at middle seats or whatever the scenario might be. But I think that it's those kinds of adjustments that are going to be part of the system. And when you have Newtown when you think about those adjustments. Let's let's talk about that about that a bit more. You have to think about those kinds of adjustments as a real estate investor for example. Many of the properties in which you might invest have some of those businesses. And in fact many of the properties in which you may be invested already have those businesses. So let's talk about that for a minute. What other. Well I mean you know we're one of the largest owner of multifamily housing in the country. Every one of our multi-family housing projects has you know Jim's and he has social areas and not in previously . You know there was no monitoring. There's no social distancing . Nobody even thought about that . Now when we open the gyms again and when we open that sorts of areas again I don't exactly know how it'll be done. But there's no question in my mind that it will add a social distancing element built into it and it'll take quite a bit of time for people's confidence grows both from a landlord's point of view and from a tenants point of view to narrow that social distance . What are tenants doing so far. Rent was due on May 1st. How many paid everybody. In other words Anna Edwards as of first of all April 1st . Basically there was no difference in our rent collections. Then a year ago now know as a percentage as far as May 1st is concerned. We're currently running at a level that would suggest that we don't expect any significant changes in terms of the amount of rent collected. I mean obviously everybody's got different starting date. So. So you don't. In effect I'm on the first of the month either correct or not collect. But you have the basis of comparison to past months and past years. And so we know whether how we're doing. So far I would say to you that we're collecting no different than we have at any other time . Does that seem. That seems a bit remarkable to me given that there are tens of millions of people who are already out of work . Wow. But I think very much depends on your tenant base is how resilient they are . You know who they are. You know I mean if I were a landlord to let's say see Grey Monkey Family Project I'd be a lot more concerned. And generally I would expect that I would collect less because in terms of those people who are who might lose their jobs or become become unemployed et cetera they are likely to be in lower quality projects than in higher quality projects. So I think that every situation is different. That doesn't mean that we don't have situations that are affected by the virus and infected by the lockdown. And to the extent that we can offer help or offer us some kind of an adjustment in timing or whatever if people are really affected by this you know where we're landlords that take that into consideration. Sam your businesses span not just real estate energy logistics transportation infrastructure health care industrial services. We just talked about one slice of it . How's the rest of your portfolio holding up and how are you running those companies. Well I answer that question starts with every morning at 8 o'clock . We all get together and zoom call and that and those people in our shop whose job it is to oversee the different investments report in and we talk about and bring everybody up to date and that you know in some cases you know for example we built that we own built a bridge. It goes from Southern California into the T1 airport. It's been extraordinarily successful. And it's . And as we opened in December of 15 and we've been averaging close to three million people and now business is down 90 percent . 90 percent now will survive and hopefully business will return . But I can't tell you when and I can't tell you at what rate it will survive. We also own a hospital chain . Hospital chain is located all over the country and not a lot of places. The impact is almost felt . Other than the fact that the government either locally or at the state level stopped us from doing elective elective surgery which is a very high margin business for hospitals. So it basically subsidizes a lot of the other parts of hospitals . On the other hand we have one facility in New Jersey where you know it's wild. I mean it's you know and by the way I think the government is it really is the hospitals. It's done a great job of anticipating how to avoid liquidity crisis and how to in effect maintain the hospitals. So that's another side of the coin . Then we have various other kinds of businesses that have been everything's been affected. Don't go and look don't misunderstand me. But some places the effect has been pretty minor in other places like Maine. The effects have been binary. So it's all over the place . Are any of your company is eligible for federal assistance Sam . And if it were available would you take it . Well the answer is that obviously a hospital chains are very much and are very much you know beneficiaries of federal assistance. That's the only place that we've been involved with federal government . Sam you've been warning for years about . Well you've been warning that there's been too much construction in U.S. real estate. There was a tsunami of of oversupply . Here we are now. How do you think that's going to affect the market where the winners and losers are going to be sector by sector . Well I guess I'd start but may spread by identifying the obvious . I think probably the number one victim is going to be retail . And retail was already feeling the effect of e-commerce . Now that the commerce and density and I think there's very little about it in we already had a very significant oversupply in retail. So I would think that retail is probably going to take the biggest hit . The second biggest hit is going to be hospitality . Again we built a lot of hotels in the last five years and not . And we were already beginning to see oversupply affecting ramp are in red and affecting occupancy . Unquestionably this is going to dramatically make things much worse. And I would I would at all be surprised if you know just like we won't see a lot of retailers reopen. I don't think we'll see a lot of hotels. I think we'll see a lot of hotels that basically can't rebuild. Generally speaking everybody has been focused on where is this going to end. Nobody's really been focused on the question of what does it cost to reopen and how how well are we capable of undertaking that cost. And I think that's very much an unknown at the moment . Multi-family is probably doing the best . Let me fix it. Housing is for sure. Doing terrific warehousing is you know has been the flavor of the month in the last three or four years . My own sense this is just my own sense at this point is that an awful lot of warehousing has been built in in in anticipation of demand. And I think I think that this is certainly going to reduce the demand balance. So I would think that the warehousing space is likely to be oversupplied. Nothing like hotels or retail . So that kind of gives you a flavor of what I think I mean I think that the single family house rental business that has been extraordinarily strong and led to the creation of a bunch of public companies I think is also likely to be affected because whereas in an average week you are apartment complex we have 300 units in a single family house. You have one unit. And if that one tenant who loses his job you know you could end up with a significant vacancy factor in that arena . Sam if we take retail and hospitality for a moment . The malls that aren't gonna reopen the hotels that can't reopen or at least can't reopen at a cost basis that makes economic sense. Is there value left to those assets. Or do they become what the blocks the residential blocks in Detroit and Cleveland became after the financial crisis. You know it's a very very good question mark. I don't think anybody knows the answer to that question in all the discussions long before the virus about retail. The argument was well you know. Yeah . You know e-commerce is going to take a lot of the retail space . But after all retail always you know in effect had the best corners. Well the best corners are defined as where the traffic is. But if the overall level of traffic diminishes then the definitely best corners. It doesn't sound quite the same way and math. So it would seem to me that we're going to end up with a lot of retail space. That's just you know I used the word bill falling apart. But pretty close to that. And it's going to take a long time. I mean I I used to talk about when they overbuilt all the strip centers. And I used to say that that you know we're going to run out of churches to fill the big boxes that are empty because a lot of churches ended up taking advantage of and taking advantage of that space. But there's more of that space out there than there are new churches can get created . Sam big cities like Chicago and New York with the big winners after the financial crisis. What happens to cities after this crisis . Well I you know I believe that. I mean I've heard a lot of conversation about you know people you know one and move out of Manhattan and one to move you know out of other major cities and and nine major cities where far dense. And I think no one generally speaking I don't believe it . But more specifically I think that if you look at who's moving into those cities what was what. What generated the benefit that they performed since the Great Recession. I think the answer is that you know these are all young college graduates . You know creating and taking new jobs. And now you know the biggest single tenant in the country today and you know are no longer the law firms or the insurance companies. It's the tech firms. And and they're you know they are generally hiring people that are young and not. And frankly they're one of the you know one of the problems with being young is you think you're invulnerable and that. And frankly as far as the virus is concerned the impact on young people has been much less than on old people. So I think that they will continue to move in and continue to you know spike or add to the economics of the major cities. Maybe we won't have as many families in the cities as we've had up until now. I think that's that's a real possibility. But generally speaking the young people are and will continue to move to the cities . Sam mobile homes or manufactured housing if you prefer was the great opportunity you saw materialize under the last crisis can you see yet . What opportunity might have materialized out of this crisis . Well I just I don't. I mean I as I look at now what the last personal definition of when was the last crisis. Certainly the mobile home park business may in fact she has business has frankly done well since I got in the early 80s . It's got it. It's done well for a very simple reason. And that is everything is coming down. This supply and demand the supply of manufactured housing communities has not kept up with the population growth mostly because I'm not in my backyard zoning. So the result is that although periodically the manufactured housing business has had soft spots it's generally outperform simply by virtue of the fact that you know there's been no ability. That's why. So to the extent that that's the case with them if I look at the rest of the you know real estate arena I think it's very early in this scenario to come up with any answers . So I'm the suspect. I. I suspect that it's going to the ways in which we change how we live as a result of this experience or certainly the people who are around right now in that I think it's very unclear as to how in what way we'll allow ourselves to change. But there will be lots changes. I mean just think about the fact that you know the majority of the people who were still employed have been working at home or from home . It's hard for me to believe that that experience is not going to impact how they work in the future. Now I think everybody is going to go from work at the office to working at home. But when I think a lot of people are going to work from home on Friday I think a lot of a lot of employers having gotten this experience are much more inclined to encourage that than they were in the past when they were afraid that you know somebody would work at home and not actually working. So we had just one example. You know I went out and got takeout food last night from a Michelin star restaurant . I've never gotten takeout food from Michelin Star Restaurant before but I don't think Michelin Star Restaurant has ever provided takeout before before. How is that going to change . Is that going to become part of their you know code methodology . They going to reduce the number of seats in their restaurant and try to encourage more takeout business et cetera et cetera . So I think there's lots of things that are likely to change . I'm a long way from being convinced that I understand enough yet to reach any conclusions. Sam you have some investments in energy. What do you think happens to oil and gas . Well I think that I mean there's no question that there is a general . Trend toward hopefully less carbon based fuels . But whatever that may or may not be it's a long way from now . I think that you know the internal combustion car is not going away. It's still going to represent maybe 5 percent of the cars being built. It will over time slowed down. We'll have more of other electric cars etc. But I think that oil and gas are somehow where they're going to because the a crash are going to somehow disappears. Very naive . We're going to keep you know. You ask me about coal. I'd say I think coal maybe within my lifetime you see dramatic reductions in its usage but I don't think that's true. Oil and gas . You've been party to a dispute Sam between colony capital and approach resources. You're on the colony side. Does that get resolved. Would you be willing to participate in a deal if approach were valued at a lower price . I think the answer is I don't think that that's an appropriate question that I could answer at this stage of the game. We just have a deal that you know where we do believe we were given a different set of facts than we thought we had . Happens all the time. I love that they get resolved . You know Howard Marks wrote something very provocative the other day. You may have seen it. He said capitalism without bankruptcy is like Catholicism without hell. We've seen four trillion dollars of liquidity injected by the Federal Reserve . Three trillion dollars of stimulus from the government. Sam is the government crowding out private capital . I don't think so. I think that that you know six or seven trillion dollars you're talking about I think is very very effective and very well done and very much oriented toward what I would call stopgap measures. But all of us need to be really realistic of the fact that this is probably 60 to 90 days of assistance. So in perpetuating that assistance at these rates is just not realistic at all. And so I think that the government has stepped in in that during a period of lockdown has created liquidity very much needed in various different places . But you know the US the US economy and the world economy has got to take on the responsibility. There's no way that the governments can do this on an ongoing basis. It's very much of a stopgap measure . Do you think the U.S. is still the best place to invest if you can do it at the right price . I think that the US is still the home of the rule of law in no country in the world. In my opinion as as clear a rule of law as what we have in the United States and as an investor who's invested all over the world I can tell you that nothing gives you more confidence than a consistent Arab rule of law in a consistent environment for that . When you earned your nickname Sam the grave dancer there was almost no one who specialized in distress investing. Now there are multi-billion dollar distressed funds. Everybody wants to be a great dancer. New ones are being announced every day. How does that change the way you think . Well it's no different now. In the early 60s you know I was one of the first you know multi-state investors in apartments. And many think about the bank that when I first began to ask the insurance companies in the United States would not lend apartments because apartments were too risky . I'm just crazy. But that's what it was. And then eventually you know living multifamily housing today is considered to be the safest form at best . There's no question meant that I agree with what Howard Marks said. By the way I think that you know bankruptcies are what you need to clear markets and what you need to end recessions and in depth since you need the ability to clear the market in that. So as far as I'm concerned I think that you know the fact that there's a lot more distressed players today will help clear the market . But it also means that there aren't anywhere near as many opportunities as there were in the past . Sam what do you think is the greatest misconception many people are under right now as they look into this uncertain future . I think that too many people are anticipating a kind of V like recovery. You know that guy you know we've been through this terrible period. The period is going to end . The virus numbers are going to go down and the world is going to go back to normal . I think that all of us who have been living in isolated form one form or another. I mean I haven't shaking hands with anybody in eight weeks . I have no frame of reference for that and it's never been the case before . So you know we've seen our whole lives change and I think your ability or or your likelihood of forgetting that is going to take a long time. I mean Santana who is a famous Spanish philosopher said you failed to learn from history is condemned to repeat it. And I think we're you know we have a lot of history that we're going to be learning about and remembering and it's going to affect that how everything we do and and that's why I'm in my my. You're your opening question to me. I answered you by saying I think it's going to take quite a while and it's not going to be easy to quote return back to where we were saying my grandparents were permanently scarred by their experience in the Great Depression. You're old enough to get to have known a lot about that generation telling you this this this this is going to be something like that. Yeah yeah yeah. Matter of fact it's really funny you should say that because the way I described it to people as I said I grew up I was in high school in the 50s and even in the 50s which was 20 years after the end of World War Two or twenty five years after the depression there were still parents of friends of mine who talked about the depression and talked about the impact on their family. And the permanently scarred is exactly the right word . And I think there's very little doubt that we're all going to be permanently scarred by having lived through this. But this is endemic. Sam on that optimistic note I'm going to thank you very much for joining me today. Great speak. It's always a pleasure. Thank you .

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Front Row: Billionaire Sam Zell on Markets, Real Estate, Post-Virus Economy

Sam Zell, chairman and founder of Equity Group Investments Inc., discusses current market valuations and what the post-coronavirus world may look like. Zell, the billionaire known for buying up troubled real estate, said the Covid-19 pandemic will leave the same kind of impact on the economy and society as the Great Depression 80 years ago, with long-lasting changes in human behavior that imperil many business models. He speaks in an exclusive 40-minute interview with Bloomberg's Erik Schatzker. (Source: Bloomberg)

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