Sam Zell on Retail Real Estate: Invest For Kids Chicago Presentation ~ market folly

Monday, November 6, 2017

Sam Zell on Retail Real Estate: Invest For Kids Chicago Presentation

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.

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