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Zell: 'No Opportuity Without Volume'

BOSTON-Professor of real estate Peter Linneman examined the future of the market with the irrepressible Sam Zell at the Urban Land Institute's 2010 Real Estate Summit.

By Ryan Clark | Updated on April 15, 2010

[IMGCAP(1)]BOSTON-”This is the time of the outlier,” Sam Zell, chairman of Equity Group Investments, remarked about the current state of the US real estate market, when prodded by Peter Linneman, professor of real estate at the Univeristy of Pennsylvania’s Wharton School of Business. During the Urban Land Institute’s 2010 Real Estate Summit, the investor and the professor regaled the ULI audience with quips, anecdotes, a history lesson and contrarian investment advice.

The pair contrasted the current investment market with times past, as Linneman noted that 10 to 15 years ago, “$200 million was a big fund” when there were no large REITs and no global dollars, but that now a $400-million-plus fund was considered a “niche” fund, among global investment capital and huge REITs. Zell was skeptical about the future of this competition, feeling that the 70s and 90s were the norm in terms of investment and that the current volume of capital was more of an anomaly than an ongoing trend.

“One of the great overstatements in history is that real estate is inflation protection,” Zell commented. “It was, is and always will be supply and demand.” The opportunity investor felt that the market was simply in a “demand recession.” An opportunity for growth, Linneman pointed out, would be the current “unformed households;” young adults and college graduates that were forced to move back with their parents because of the economy and lack of jobs. The UPenn professor said that as that economy turned around, there would be an “explosion” from that group seeking housing. Zell slightly disagreed about the impact it would have, saying that the boom would be slowed by lack of housing.

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