Zell sees open door in emerging real estate markets

Written by Tropicasa Realty
April 10th, 2008

By William Kemble-Diaz

LONDON, April 8 (Reuters) – Real estate mogul Sam Zell sees few opportunities in U.S and European property markets but says undersupplied residential markets in Asia and Latin America remain moneyspinners for adventurous housebuilders.

“Generally speaking, we do not see … any significant opportunities in the developed world,” Zell told a property conference on Tuesday.

Zell — who sold Equity Office Properties Trust to Blackstone (BX.N: Quote, Profile, Research) in February 2007 for $23 billion plus debt, in one of the biggest private equity takeovers — also said the U.S. dollar was undervalued relative to European currencies.

“As an equity investor … I wouldn’t be comfortable holding (real estate) assets in euros at current rates,” he said.

Zell, who heads firms including leading U.S. apartment landlord Equity Residential (EQR.N: Quote, Profile, Research) and U.S. newspaper group Tribune (TXA.N: Quote, Profile, Research), said some property-related structured products such as collateralised loan obligations had been excessively marked down in value in the United States due to “firesale accounting”.

But with banks unwilling to offload such assets at lower levels, in the belief they were worth more, the most lucrative opportunities in real estate investment were in emerging markets such as Egypt, Chile, Mexico, China and Brazil, where demand for middle-to-low income homes “continued unabated”.

Zell said another company in his stable, private equity firm Equity International, had delivered 60,000 Mexican housing units in 2007 but had not dented enormous demand from the fast-growing middle class in the country.

U.S. OFFICE PROSPECTS

Zell said he did not see the U.S office market in terminal decline, despite concerns of a drop in occupier demand due to financial sector job cuts in key markets such as New York.

“I don’t expect to see any dramatic change in cap rates or the viability of high-quality office investments in the U.S.”, he said, adding the pace of new developments had slowed sharply since the summer, which would help keep a lid on supply.

“Cap rates” are a key valuation measure for real estate investors and are also known as property yields. They measure rental income relative to a building’s capital value.

Zell said the stricken U.S housing market was also positive news for well-financed apartment landlords, as demand for rented accommodation continued to surge in the wake of a squeeze on mortgage availability.

“There’s no question we are benefiting from the fact the U.S housing market has slowed dramatically,” he said. “The apartment business is in terrific shape.” (See http://www.reutersrealestate.com/ for the global service for real estate professionals from Reuters)

(Reporting by William Kemble-Diaz, writing by Sinead Cruise; editing by David Hulmes)

(original in http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSL0848248720080408?sp=true)