Sam Zell: Nice Distressed Real Estate Bargains Are Ahead

Sam Zell, who made his fortune in distressed properties, believes that the pandemic will scar America’s psyche—but good deals still will be available despite the gloom. In scarfing up battered real estate.

Known as the Grave Dancer, for his affinity to buy ailing assets, Zell compared the present coronavirus-burdened economy to that of the 1930s, contending that people now will come away with similar caution.

The Great Depression’s massive joblessness and depleted bank accounts imbued a reluctance to invest in the stock market and a fearful thriftiness, he said. By the same token, the “extraordinary shock” of the coronavirus pandemic will lead to a reluctance to shop in stores, travel in planes, or stay in hotels, he predicted. “The fact that these places may be open,” he added, “doesn’t necessarily mean that they’ll be doing business.”

At the moment, owners of commercial real estate, his hunting ground, want to sell anything, he told Bloomberg TV, but that will change in time.

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“Those sellers that wanted to sell still remember the prices that were available seven or eight weeks ago,” he said. “The buyers are looking at a very different world and expecting to see significant discounts. When you’ve got that big a spread, nothing happens.”

To Zell, that situation will improve for buyers. Plus, in his view, properties that look bad now will turn around with the benefit of time. He added that he doubted big cities such as New York were finished, which could bring him ripe pickings eventually.

“Bankruptcies are what you need to clear markets and what you need to end recessions and dips,” Zell said. “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.”

His own empire has had mixed results during the current downturn, he said. Zell owns everything from shopping malls to a hospital chain. One of his largest holdings, the publicly traded Equity Residential, is down 30% since the February market peak. This real estate investment trust specializes in apartment buildings. He said he hasn’t yet seen any falloff in rental income from tenants.