Skip to comments.Why “The Grave Dancer” Is Cashing Out Once Again Sam Zell has called the top again …
Posted on 04/27/2016 7:53:32 PM PDT by Lorianne
Sam Zell has called the top again
Zell is a real estate mogul and self-made billionaire. He made a fortune buying property for pennies on the dollar during recessions in the 1970s and 1990s. This earned him the nickname The Grave Dancer.
Zell was also one of the only real estate gurus to spot the last property bubble and get out before it popped. In February 2007, he sold $23 billion worth of office buildings. U.S. commercial property prices peaked nine months later and went on to plunge 42%.
Zell is seeing a similar situation in today's market
His company has sold more than $8 billion worth of property over the past 18 months. In January, it sold 23,000 apartment units, about one quarter of its portfolio.
In December, he told Bloomberg Business it is very hard not to be a seller with the pricing currently available in the commercial real estate market. Since 2010, commercial property prices have nearly doubled to all-time highs. Theyre now 16% above their 2007 highs. But recently, the market has reversed course
In February, commercial property sales plummeted 47%. And they've now fallen three months straight. That hasnt happened since the 2009 financial crisis.
This month, Zell warned that prices are still too high.
If somebody needs a bell ringing to figure out that the real-estate market is pretty frothy right now, then Im in the business of selling hearing aids, he said.
(Excerpt) Read more at caseyresearch.com ...
I see lots and lots of empty spaces in strip malls here in the Midwest. Lots. Many that have been vacant 6 months, or over a year or more.
Some stand-alone places look like they were abandoned. This portends what’s coming to the home real estate market as well.
Not to mention the subprime mortgages and car loans that are about to implode.
Under Obola, it is illegal for a bank to deny a black person a loan for any reason.
And you wondered where all those new black home-owners in your neighborhood came from?
One has to give Zell credit for calling the prior top of the RE market quite literally to the hour. The Lehmans of the world, flush with funding from an insane debt-issuance market were offering him such ridiculously high prices for most of his commercial holdings he could not rationally refuse. And he said so in perfectly clear language at the time, that he was being offered so much more than the properties were worth that he had to sell them. That’s when he sold most of Equity Office.
On one hand, it is not that often that a wizard like Zell gets things exactly right twice in a row. Witness Bill Ackman who made billions betting against the RE market last time but is struggling with bets that have turned out wrong, wrong, and wrong since then. I am not sure that Zell has the full comprehension of the meaning of negative interest rates because it is an utterly synthetic environment that has never existed before.
But I would not bet against him!
That's a fascinating topic. The yield on the 10-year Treasury has been sitting below 2% for most of this year. AFAIK, it's never been that low. It seems like we're in a vortex with no escape.
Your guess is as good as mine how it plays out.
The crisis was in full bloom in 2008 under Bush II.
Remember McAsshole suspending his presidential campaign so he could deal with the crisis?
Agreed. I also have no idea how it plays out. I *do* know that folks who have been short bonds over these past few years have been obliterated. At present, there are really too many moving parts in the international monetary system for a human brain to comprehend. Oil, currencies, currency wars. Massive outflows of Euro capital fleeing NIRP and Chinese capital fleeing confiscation and ramping US stocks in the light of really deteriorating earnings. Crazy.
I also know a few immutables:
1: that RE is a great thing to own as long as it cashflows but is a vicious millstone if it does not, and these Class 1 commercial RE bldgs in NYC need astronomical rents to pencil out. No matter where interest rates are or go.
2: many of the loans underlying these properties are REMIC loans, which means that they cannot be refinanced except by replacing the collateral with a ladder of US Tsys which in an era of declining bond rates is practically impossible without taking a massive, massive hit on the loan principal. (A process known as “defeasement”)
3: The last ones in to any bubble are almost always the ones who get lunched.
International markets are now utterly tied to central bank stimulus and the threat of just easing off that stimulus have crashed the N^225 by 500 points as I write this. ES Futures came off 15 points from the NY close in mere minutes, recovering a tad. Probably a ho-hum by morning.
Yes, that is true.
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