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February 26, 2009

"What Is Your Capital Worth?" Asks Zell

Catherine New
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“We are great risk of becoming over-dependent on a miracle solution,” Sam Zell cautioned students during his recent presentation at Columbia Business School. Referring to the current economic crisis as the first “Blackberry recession,” Zell warned against instant gratification and said the economic recovery could be slow and gradual.

Professor Lynne Sagalyn introduced Zell, who spoke about the economy and the real estate market on February 17 as part of the Silfen Leadership Series.

Though cautious, Zell did sound a note of optimism when he said that the real estate industry will recover more quickly than pundits suggest, and that equilibrium for the single-family home market could appear as soon as the summer.

“But before you ask where the opportunities are, you have to identify what your capital is worth. The biggest mistake anybody could make is to assume that his capital is worth the same today as it was a year ago or two years ago,” he said. “The reality is that it is worth two, three or four times more than it was as recently as 24 months ago.”

Zell said opportunity could be found in the debt-side of real estate and in geographic areas where demand is growing, citing locations as diverse as China, Brazil, Mexico and Egypt.

“Ultimately, profitability will come from the acquisition of assets at measurable discounts to replacement costs, whether it is in equities, real estate or any other area,” he said.

Photo credit: Leslye Smith