Market Overview

Delivering Alpha: Where Is Real Estate Going?


At the CNBC Delivering Alpha conference, Carl Quintanilla is moderating a panel about real estate, which includes Bill Ackman of Pershing Square, Sam Zell, Chairman of Equity Group Investments, and Barry Sternlicht, Chairman and CEO of Starwood Capital Group.

Bill Ackman says that one thing the U.S. government could merge Fannie Mae with Freddie Mac, and turn it into a real estate investment trust, renting out single family homes to the American public. Ackman mentioned Howard Hughes (NYSE: HHC), which owns a lot of land. Ackman is Chairman of Howard Hughes, which was spun off from General Growth Properties (NYSE: GGP). He also mentioned shopping mall REITs as being particularly attractive. Ackman said that a shopping mall REIT is an inflation protection. He likened it to a Treasury Inflation Protected Security (TIPS) because of the yield. Ackman said he would rather buy a piece of real estate at a 4% cap rate in New York or San Francisco, then a town with an infinite supply of land, such as Cleveland. He mentioned specifically the rent on Fifth avenue going sky high, because Apple (NASDAQ: AAPL) proved you could sell $10,000 per square foot.

Sternlicht says that the government is treating the symptom and not the disease, but no one wants to buy a falling knife. He had a plan for the Obama administration, but he is not interested in seeing Obama have another term, so he is going to save his plan. He said that prices in Miami are up fifteen to twenty percent year-over-year, there are pockets of strength in the country. Places like Nevada, Arizona and others are still dead. He does believe the U.S. housing market will come back. Sternlicht went on to say that confidence is killing the consumer, and that despite the housing market being so affordable, it is not helping the consumer. We are going to need new houses across the country. The level of 350,000 single family homes is not sustainable going forward, it needs to go higher. Sternlicht said that pools of capital are looking for yield, and you could pool money and leverage it up to get returns in real estate. Silicon Valley is on fire, and Sternlicht said that it is feeding on itself. Sternlicht said we elected a community organizer that is acting like a community organizer, instead of a leader.

Zell says that the government should undue what it already has done before with regards to the U.S. housing market. It has done nothing but add to our deficit. Zell said that government is never efficient, and it should never enter the free market, as it creates distortion. Zell said, "You can't create a REIT unless you are dealing with producing properties. The good news is there is a lot of scale out there." Zell said if done correctly, there would be massive interest in creating a REIT that leases single family homes similar to what the panel discussed. He does expect priced to be higher five years from now. Quintanilla asked whether the rage for rents would continue, and Zell said that people are almost willing to pay more to rent as opposed to buy, to cut out on liabilities. He said in the commercial real estate market, the markets are resisting raising rates. The only place where it is happening is multi-family homes. Zell said he went through the "buy at the low, sell at the high cycle" in Dallas, perhaps ten times. Zell said that you could not do worse than the Obama administration. Zell is very bearish on Obama, but he does not Obama. He said "ABO," which is "anyone but Obama."

Posted-In: Bill Ackman Delivering Alpha Pershing Square Sam ZellCNBC Long Ideas Media Trading Ideas


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