While investors wring their hands over the doom-and-gloom of the housing market, at least one real estate giant sees good times ahead.
Sam Zell, once the biggest landlord in the United States, sold his Equity Office Properties Trust for $39 billion just ahead of the credit mess.
Now, he says, things are turning around, and commercial real estate should prosper first.
"The commercial real estate market is going to do terrific no matter what the economy does, short of a depression,” he tells Bloomberg News.
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Zell sees institutional investors creeping back in to the market for mortgage-backed securities, the same instruments that got the big investment banks into so much trouble in the residential market.
The International Monetary Fund sees total losses for the banks on bad home mortgages hitting $945 billion worldwide, of which only about a third has been written down so far. The top U.S. bank regulator, Sheila Bair at the FDIC, now wants the government to force banks to restructure many home loans.
Zell, however, sees better times ahead for commercial property and for new construction in office buildings.
For instance, he says, commercial mortgage-backed securities are beginning to pay back the minimum needed by big pension funds.
"Is it in large volumes? No. Is it the first natural step in the evolution? Yes,” he says.
A popular index which tracks commercial properties through real estate investment trusts (REITs) shows an average return of 6.5 percent for 2008 to date. The dividend yield, averaging 5.3 percent, was most of that gain, according to the National Association of Real Estate Investment Trusts.
Comparatively, general stocks indexes have fallen by that amount, while 10-year Treasuries yielded 3.8 percent.
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