WORLD PROPERTY CHANNEL ®

Sam Zell

(SAN DIEGO, CA) -- If you want to cash in on the current distressed real estate markets, buy equity, not property, advises Chicago billionaire entrepreneur Sam Zell.
 
Speaking at the University of San Diego's 14th annual Real Estate Conference, the real estate and Tribune newspaper (NASDAQ:TRBCQ) tycoon sees great opportunity in the commercial real estate market, despite other experts' predictions of doom, the North County Times of Escondido, CA reports.
 
Banking analysts warn the nation could be swept by a wave of foreclosures of apartment buildings, retail outlets, industrial space, and office complexes in the coming year.
 
Zell says some investors expect to score bargains from desperate owners -- but he doesn't see that happening.
 
Distressed property markets are Zell's primary expertise. He made his fortune in the 1970s and 1980s investing in discounted properties saddled with debt or other problems, according to a Forbes.com biography.
 
By 2006, Zell had turned his $200 million personal fortune from 1986 into $4.5 billion.
 
In 2007 he became yet richer when he pulled off what his own Web site calls the largest private equity deal in history:  At the peak of the commercial property market, he sold his property trust to Blackstone, Inc. for $39 billion.
 
But this expert in distressed assets, who earned the nickname "Grave Dancer," thinks his preferred strategy won't work this time around, the North County Times reports.
 
"There ain't no grave-dancing opportunities, because nobody's got the equity that you can grave-dance," Zell says. "If there are opportunities in distressed real estate, it's not in buying the real estate, it's buying the debt."
 
He says owners with no equity won't bother to sell at any price because all the money would go to creditors. Instead, Zell expects to see investors pay off some of the debt in exchange for equity.
 
And the best place to apply this strategy may be apartment buildings. While he doesn't expect to see any new commercial construction for the next five years, the United States adds roughly 1 million new households a year, which should lead to strong demand, Zell says.
 
He feels the residential market has hit bottom and is on its way back.  On other topics, Zell says he is worried about the debasement of the dollar, and he thinks the health care bill that passed the U.S. Senate is a terrible idea.
 
Still, he says, he is continuing with a project to build a new airport terminal on land he bought in Otay Mesa, CA., the North County Times reports. Otay Mesa is a mostly rural community within the city of San Diego, just north of the US-Mexico border
 
The terminal would allow planes to take on passengers on the American side, but take off and land on the runway in Mexico.
 
"San Diego desperately needs more air service and air access," he says.  "It's going to take two years to get through the planning process, with each committee waiting for its chance to put another month delay on it."

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