Zell: 'Got to come clean by 2013'

The demise of the commercial real estate industry in the US was dismissed as “greatly exaggerated” by Sam Zell as he warned low interest rates and banks unwilling to act on troubled loans would exacerbate the current environment of extend and pretend.

Speaking at the Association of Foreign Investors in Real Estate (AFIRE) conference today, the chairman of Equity Group Investments said banks unable to take write downs on their loan portfolios would continue to issue “hope certificates” in the form of extensions and modifications to “zombie” owners who overpaid for their properties during the boom years.

As such as the commercial real estate industry in the US would not “demise”, as many initially expected. “The word demise was only on paper,” Zell told the 300-strong AFIRE conference in Chicago.

Reflecting on the phrase he coined during the RTC, “stay alive til ‘95”, Zell said the answer to the current dilemmas facing the US real estate industry was “you have to come clean by 2013”.

Delegates attending the 22nd AFIRE conference heard that part of the challenge facing private equity investors in the asset class was the wall of capital that is now targeting property investments in search of yield.

Part of that extra liquidity is coming from countries such as China, Zell said, including from its sovereign wealth fund, the China Investment Corporation, but also from lenders looking to fill the void in the debt markets left by US financial institutions.