US developer Sam Zell took the British Property Federation conference in Brighton by storm yesterday as he proclaimed his vision of a “Brave New World” in US real estate.
Zell claimed that the US real estate investment trust market, the quoted trusts which have mushroomed in value from US$5bn to US$120bn in the last seven years, had caused fundamental changes in attitude to property, as well as a massive switch from direct to indirect ownership.
“Investors are recognising the difference between an operating company and a collection of assets. REITs are trading at up to a 50% premium to net asset value…there is a whole new focus on management,” he said.
Zell argued that the management savings which giant REITs like his Equity Group were able to pass on meant that “you make money in real estate by being a low-cost producer not by being able to borrow more money or put up more bricks and mortar.”
Zell said that, if REITs are combined with other US securitised products, the whole US securitised market is worth US$300bn and that securitisation is set to become a worldwide phenomenon.
He said that it was not the unique REIT structure – with tax transparency that is still outlawed in the UK – that was the issue, but the growing sophistication of capital markets which recognise that liquidity creates value. “It is the realisation that if you can provide liquid real estate then you have solved one of the great conundrums of all time”.
EGi News 11/02/98
