Sam Zell Is a ‘Big Bull on Apartments,’ Not Single-Family Homes

Thursday, 14 Feb 2013 07:46 AM

By Glenn Kalinoski

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Real estate expert Sam Zell believes investors entering the housing market observe a great deal of caution.

“I think everybody has ignored the fact that there’s still 3 to 4 million houses in purgatory, not for sale, not foreclosed, maybe occupied, maybe not occupied,” Zell told CNBC.

“You have to address that before you have a really strongly recovering single-family market.”

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The chairman of Equity Group Investments also warned that investors should not be swayed by headlines proclaiming a market turnaround.

“There was a headline yesterday — 88 percent of the markets are improved,” he said. “That’s an interesting statistic for a headline, but is it relevant? You have this giant cheering section saying if we cheer loud enough the housing scenario will improve. The answer is, maybe.”

Zell noted that he hasn’t understood the fact that for “four of five years” there has been a great deal of discussion and various players buying single-family houses as “some kind of terrific investment opportunity.”

“How can you operate and create scale in that situation?” he asked. “An individual investor can buy 25 houses and monitor them. I don’t know how anybody can monitor thousands of houses.”

He also explained that the housing market is being artificially subsidized by low interest rates, and when that turns around, the whole economy will be affected.

While acknowledging that the market has hit bottom, Zell dismissed the theory that as single-family housing is improving the rental market will suffer.

“I don’t think there’s any evidence at all to potentially suggest that,” he said. “In many ways our society has changed. The need or desire to own a home is nowhere near as prevalent today as it was five or six years ago. I’m the chairman of the board of the largest apartment company in the United States. Our enthusiasm, our performance, we couldn’t be more happy with where it’s going.”

Zell added, “I’m not a big bull on the single-family market. I continue to be a big bull on apartments.”

While the recent rebound in housing statistics has some people excited that another boom is coming in the residential real estate market, Yale economist Robert Shiller doesn’t think that will happen.

“The unfortunate truth is that the tea leaves don’t clearly suggest any particular path for prices, either up or down,” he wrote in an article for The New York Times.

“Any short-run increase in inflation-adjusted home prices has been virtually worthless as an indicator of where home prices will be going over the next five or more years.”

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