We're posting up notes from the Invest For Kids Chicago Conference 2017. Next up is Sam Zell of Equity Group Investments who gave his thoughts on the retail real estate industry.
Sam Zell's Invest For Kids Chicago Presentation: Retail Real Estate
There have been “bearish overtones” to each of the past five annual gifts that Sam gives to his friends/partners.
Retail
real estate – most people agree about a decline here, but online is
still only 8.5% of total retail; it is very early in tech’s impact;
everyone is trying to catch a falling knife; where’s the bottom and
what’s an appropriate cap rate – open questions; best malls are OK
because they’re mini downtowns, and on the other side the strip-center
convenience-driven stores are OK – everything in between is an oxymoron;
USA has 5 square feet per capita more retail real estate than any other
nation; a lot of retail could go away and nobody would notice; Sears,
Penney created malls as anchors, but now they are the “anchor” dragging
everyone down; free rent is still too expensive if there is no traffic;
might be 1-2 years left on a lot of bad leases – big changes coming;
we’ll always have some retail, but unclear as to what the right price
is.
Taubman is selling at a 6.3% (?) cap rate, but look at
some of their peers and look at some of the tenants – who will fill
empty stores/leases? The growth of passive investing and indexations
and ETFs is very, very dangerous; many real estate companies now have
heavy ownership from entities who aren’t real owners; something will
precipitate a regulatory change; ISIS = ISIS; ETFs are untested in a
downturn; markets should be about capital formation and price discovery,
neither of which apply to ETFs
With low rates, the burden
of carrying cash is as low as ever – a great option to hold. Things
don’t grow to the sky – we’ll have a correction eventually. There is a
reasonable chance of tax reform getting done.
For more from this event, check out the rest of the presentations from Invest For Kids Chicago 2017.
Monday, November 6, 2017
Sam Zell on Retail Real Estate: Invest For Kids Chicago Presentation
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