Real estate mogul Sam Zell, who learned the hard way about investing in troubled industries after buying and temporarily owning the Chicago Tribune even as the internet devoured newspaper revenue, is sounding alarms about the plight of the commercial real estate market.
“There is no question in my mind that retail is a falling knife, and we are for sure not at the bottom,” he told CNBC on Wednesday (Aug. 26). “We started this whole [pandemic] with more retail space per person than any other country in the world, by a multiple. The change in retail is really just a reorganization of oversupply.
“The pandemic has accelerated the amount of online retail, and I don’t think that’s ever going to change,” he added. “That’s going to require future retail real estate to be very different than it has [been] up until now.”
Zell, 79, was ranked by Bloomberg's Billionaires Index (as of Aug. 26) as the 454th wealthiest person in the world, with a net worth of $4.97 billion. The index updates in close to real time.
The full video of Zell's interview on CNBC's Squawk Box program is available online.
Additional takeaways from Zell's remarks include:
Zell is famous for spotting good deals and buying low. He said his firm is "for sure active" in seeking deals, but "it's really too early for what I would call the normal clearing process, and that clearing process usually leads to opportunities." It will be perhaps a year before opportunities present themselves because COVID-19 has stalled "decision-making," he said.
As for real estate in big cities, Zell said: "Everybody is being driven and impacted by the issues of safety. We're in kind of an early stage of a change … I think Chicago was surprised by the violence and the looting and the organized nature of the attacks." But the city has taken "significant steps" to respond, he said, and he thinks any flight to the suburbs is "a short-term response."
Zell said he doesn't see "anything like the bad old days when cities were too dangerous."