Sam Zell calls bottom for residential real estate, says GM is done

Billionaire real estate investor Sam Zell called a bottom to the residential real estate market on Bloomberg TV this morning. He thinks by summer the "affordability factor" will make residential real estate "very attractive," although in his view commercial real estate is not close to the bottom. He was generally positive about what the Obama administration is doing, admitted making a mistake in buying the Tribune Company, and thinks Citigroup (C) should be saved, but GM (GM) should go bankrupt.

As far as residential real estate is concerned, Zell expects a significant number of the foreclosures will be absorbed. Generally, he said the market was "flattening out" after "extraordinary drops" from November to January. He thinks we're moving from depression valuations to recession evaluations, essentially "going from the basement to the first floor."

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Zell was not as optimistic on the commercial side (though he does think multi-family residential properties will fare better). The big problem with commercial real estate is that there just aren't any transactions. With $2.6 trillion in commercial debt outstanding, that means much of it will simply be rolled over. He does expect to see some foreclosures or restructuring of debt that will allow properties to trade. The speculation is that commercial real estate is down by 30 percent, but we won't know the actual figure until we start to see some properties move.

When asked about the job Obama is doing and the stimulus package, Zell thought it was "too early to tell," but he does think that the $12.8 trillion in spending will have a positive impact on the economy and more importantly a "positive impact on confidence levels," which is important for recovery. His primary objection to the stimulus bill was that it included too many pet projects that were not true stimulus.

Although he believes the government has so far "acted appropriately" and generally approves of its aggressive moves in response to the financial crisis, he does think Obama is trying to do too much. He believes the President should focus on the economy and let the other priorities slide until we are in recovery mode.

When it comes to buying "toxic debt," Zell thinks it looks attractive now and indicated he would be a buyer, but wouldn't give any indication of exactly what kind or how much. He thinks the public/private nature of the government's toxic asset program will be a tricky sell for some buyers. Private entities are afraid the government may later try to micromanage bonuses and compensation related to the transactions. So he thinks many will stay away, but if it's "executed appropriately," it could be very successful.

When asked about bailouts for Citigroup and GM, Zell believed Citigroup needs to be helped but that GM should be allowed to go bankrupt. He said, "Citigroup is an integral part of worldwide financial system," a crucial trading partner and lender. But he thinks GM has gone "beyond the point of being rescued" without going into bankruptcy. He believes the car industry is a "failed industry" and the companies need bankruptcy to clean up the mess and come up with a new plan.

When asked about the Chicago Tribune filing for bankruptcy, he did admit he'd made a mistake in buying the Tribune. But he would not commit as to what the Tribune company will look like after reorganization. He would only say that they were looking at all options, including selling off some properties.

Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies.


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