Zell Says No Credit Crunch - Instead a Confidence Crunch
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Recently Sam Zell was interviewed at Wharton Business School about the recent volatility in the real estate markets. As you may know, Zell sold his Equity Office Products group to Blackstone near the peak of the market. He goes on to talk about that there is still credit available even though we are all calling it a credit crunch. The problem lies in the confidence of the buyers to do the deal and take on the new risk premium in higher interest rates.
In a wide-ranging lecture at Wharton, moderated by real estate professor Peter Linneman, the Chicago-based investor said current markets are spooked by problems with U.S. subprime lending. However, they still have capital to deploy, unlike during other real estate busts, when financing could not be arranged at any price.
“We’re not really in a ‘credit crunch.’ I think we’re in a ‘confidence crunch,’” said Zell, funder of the Samuel Zell and Robert Lurie Real Estate Center at Wharton. “I would argue the excess liquidity that existed eight weeks ago still exists today. It has a different risk premium on it, but the actual amount of liquidity has not changed.”
Zell said the slump should come as no surprise: “Over the last three years, people were flippant. They bought anything they wanted and were proud that they didn’t do due diligence. I think they have all been chagrined and are scared out of their minds.” via Forbes.com
If you have the time read the rest of the article. Sam Zell is one of the great minds in real estate this century as he has developed the insight to watch trends and counter the exuberance that tends to captivate real estate investors and players.
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Comment by Yaitsme on 23 September 2007:
Who are we to argue with Sam Zell. He tends to get it right more than wrong. If he’s correct (and I believe he is) the masses are all a bunch of fools who once again fell for the corporate media hype - THE BUBBLE IS BURSTING - PANIC AND HIDE IN YOUR HOMES - STOP SPENDING UNTILS WE SAY THE COAST IS CLEAR… Once again the generally ignorant public has played right into the hands of those who know how to herd mere mortals into their profitable corrals. Sam is doing us all a favor by letting us in on the nasty little secret. Will anyone actually listen?