[Rushtalk] Sam Zell Sees Economy Permanently Scarred by Pandemic

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Sat May 9 10:09:40 MDT 2020


We recovered from the Spanish Flu, the black death and even the FDR made worse Depression.
What we need worry is panic driving people to embrace communism rather than voting for Trump and rapid recovery.
Trump needs to reopen America for business and accept the price in human life even if Walmart / RED China never recovers.


Billionaire Sam Zell Sees Economy Permanently Scarred by Pandemic

Erik Schatzker
May 5, 2020



Bloomberg) -- Sam Zell, the billionaire known for buying up troubled
real estate, said the coronavirus 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.

“Too many people are anticipating a kind of V-like recovery,” Zell said
in an interview with Bloomberg Television. “We’re all going to be
permanently scarred by having lived through this.”

Just as the depression left behind a generation that couldn’t shake the
experience of mass unemployment, hunger and desperation, the burdens
this crisis has forced on society may be similarly hard to forget. Zell,
78, said it won’t be easy for people to live as they did before the
“extraordinary shock” of the pandemic.

He expects some amount of social distancing and working from home to
persist long after the acute phase of the outbreak is over, possibly for
years. Retail, hospitality, travel, live entertainment and professional
sports are some of the industries he sees continuing to struggle.

“How soon will anybody get on an airplane? How soon will anybody stay in
a hotel? How soon will anybody go to a mall?” he asked. “The fact that
these places may be open doesn’t necessarily mean that they’ll be doing
business.”

Nothing to Buy

Zell disagrees with the conventional wisdom that big cities like New
York are doomed and warehouses are the smartest bet in commercial real
estate.

For now, the raspy-voiced investor who earned his nickname, the Grave
Dancer, buying distressed real estate in the 1970s, is watching from the
sidelines. Like Warren Buffett, Zell hasn’t found anything to buy since
the onset of the pandemic. Part of the problem is a lack of deals.

“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,” he said.
“When you’ve got that big a spread, nothing happens.”

Zell’s own investments -- concentrated in real estate and ranging from
U.S. mobile-home parks to shopping centers in Latin America -- have been
a mixed bag. At one project, a bridge called the Cross Border Xpress
that connects California with Tijuana International Airport in Mexico,
business is down 90%. Yet at U.S. hospital chain Ardent Health Services,
“the impact is almost unfelt,” other than government bans on elective
surgery, he said.

Every weekday morning, Zell confers with his managers on a Zoom call
from his office overlooking the Chicago River. Recently, he’s been
briefed on the situation at Equity Residential, his largest publicly
traded company.

Shares of the real estate investment trust, one of the biggest apartment
owners in the U.S., are down almost 30% since late February. Rents,
however, are holding up well enough that Zell said he doesn’t expect any
significant changes in monthly collections.

Oversupply Warnings

For years, Zell has been warning that the U.S. construction boom would
result in oversupply and lower prices, and the current shutdown “is
going to dramatically make things much worse.”

“Just like we won’t see a lot of retailers reopen,” he said, “I think
we’ll see a lot of hotels that basically can’t reopen.”

When he does decide it’s time to invest, Zell will have plenty of
company. Apollo Global Management Inc. is pivoting its $25 billion
private-equity fund to buy distressed corporate debt. Oaktree Capital is
raising a $15 billion pool to capitalize on similar situations.

“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.”

For more articles like this, please visit us at bloomberg.com

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©2020 Bloomberg L.P.





 

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