Billionaire investor Sam Zell said Friday that the U.S. commercial real estate market likely will turn around before the economy regains the 7.25 million jobs lost over the recession.
"It will take us three to four years to get us back those 7 million jobs," Zell told an audience attending a real estate forum sponsored by the Wharton School, the business school of the University of Pennsylvania. Yet, commercial real estate will not have to wait as long because of constrained supply.
There has been no new significant commercial real estate development started since July 2007, Zell said.
"I think it's very unlikely anything new will be built over the next 24 to 36 months," Zell said.
That will help the slumping U.S. commercial real estate market regain some of its footing, with more sales and new investment before 2013, he said.
In the meantime, Zell said he is buying debt as a way to gain control of underlying real estate, or non-real estate entities. But based on his meetings with banks over the past three months, he is finding they are reluctant to sell real estate loans.
He said banks cannot yet absorb the losses that would be required and are only offloading them in dribbles now.
"There will be a point I think, maybe 24 months out, when banks get healthy enough where they change their methodology," he said.
There will be plenty of opportunities because more than half of all U.S. institutional real estate was sold from 2000 to 2007, and the debt balances exceed the value of the properties today.
"Everyone that bought during that period is underwater," he said.
Meanwhile, Zell, through his private-equity investment arm Equity International, has invested aggressively abroad, particularly in Brazil. He also wants to invest in Morocco and Colombia, whose populations are big enough to promise growth. He recently exited Chile because it was too small.
"Without scale you are wasting your time," said Zell , who just returned from a trip to Morocco.
Zell appeared soured on China, citing uncertainty over corporate governance and treatment of foreign investors.
"There's' no question that China is going to grow and there's no question there is going to be demand," he said. "Whether or not an outsider can benefit from that is becoming more questionable every day."