Tuesday, July 28, 2009

Sam Zell Interview On CNBC: Talks Residential, CRE, Brazil, Tribune, And More

Sam Zell was interviewed by the Money Honey, Maria Bartiromo, on CNBC after today's close. He touched on a number of topics.

As always, The Grave Dancer is worth listening to.

When asked (paraphrasing) "fact or fiction the residential single family home market is seeing signs of rebounding", Zell basically agreed. He caveated by saying that he is not forecasting a strong rebound, rather an equilibrium that allows for normalization. He further said his views exclude the worst markets, on which he takes no opinion other than likely continued pain.

On commercial real estate, Zell said the only thing holding this market together is low rates (CRE mortgages tend to be LIBOR+). Believes that a huge portion of the CRE market is underwater, but as long as they can continue servicing their debt load, the banks will probably allow commercial mortgage borrowers to keep trying. Zell said that he thinks borrowers really begin cracking in two or three years, given his central view on when rates begin to rise.

Brazil is his favorite market in the world to own real estate assets in. Six main reasons:
1) An elected government that we get along with;
2) 180 million person populous gives the nation scale;
3) Energy self sufficient;
4) Commodity self sufficient;
5) An educated business class; and
6) Ease of doing business (this and #1 are the big differentiators from China which he also likes long term).

When asked about Tribune, Sam Zell said that from a macro perspective the print business will continue to struggle but will not disappear entirely. He expects to have the Cubs situation resolved soon (sounds like he's selling them ASAP).

Zell believes a big advantage is that he is not emotionally attached to investment assets. This fits with Buffett's frequently stated quote that "You have to have the right temperament. I tell the students who come visit me that if you have more than 120 or 130 I.Q points, you can afford to give the rest away. You don't need extraordinary intelligence to succeed as an investor. You need a philosophy and the ability to think independently. It doesn't make any difference what other people think of a stock. What matters is whether you know enough to evaluate the business."

Finally, Zell said he believes that many of the governmental social programs being proposed today (e.g., cap and trade, health care) have the ability to undermine the fragile state of confidence we have in society and that confidence is the key to recovery.

Enjoy the interview: