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Tuesday, October 02, 2012

Sam Zell's Poor Forecasting Record

by Calculated Risk on 10/02/2012 12:23:00 PM

I've been writing about real estate for years, and I've received several emails over the years saying "Sam Zell disagrees with you, and he knows!". Hmmm ... well, one of us has been wrong.

Sam Zell was on CNBC today arguing the US economy is heading back into recession:

"Nobody wants to make commitments beyond tomorrow," Zell said during a"Squawk Box" interview. "One of these (recession) triggers is when enterprise projects start getting delayed. We're heading for a recession and that's exactly what you're looking at now. You're looking at capital expenditures across the board being deferred for a reason: There's no confidence."
Actually a recession is unlikely right now. Of course Zell's economic forecasting track record is very poor. A few examples ...

Sam Zell in April 2005 at the Milken Institute Global Conference:
"The housing bubble has been created more by the business press than reality," said Sam Zell, chairman of Equity Office Properties Trust and Equity Group Investments LLC. "You can't have a crash without oversupply."
According to Sam Zell there was no housing bubble, and there would be no crash.  How did that work out?

And from my notes at the April 2008 Milken conference:
Commercial [real estate] will be fine in his view (not my view). Also Zell thinks losses are overstated for investment banks and CDOs.
Actually losses for investment banks were understated (ask Lehman) and commercial real estate was about to be hit hard (look at the office vacancy rate released this morning).

And here is Sam Zell calling the price bottom for houses in 2009:
[T]he residential real estate market has reached an equilibrium where prices will stop falling, said Sam Zell, founder and chairman of Equity Group Investments.
According to Case-Shiller house prices declined another 5% in nominal terms and about 11% adjusted for inflation.

Obviously Zell was a very successful commercial real estate investor, but I rarely agree with him on the economy.