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Zell: '08 Won't Be So Bad

Terry Savage

Real estate tycoon Sam Zell said investors shouldn't believe the panic headlines they read in the newspapers, because 2008 will be a better year than many experts are predicting.

Zell, who expects to close the acquisition of Tribune (TRB Quote - Cramer on TRB - Stock Picks) next week, made the remarks at a luncheon in Chicago. He told those in attendance that "we're not in a liquidity crunch," but instead that the economy is going through "a significant repricing of risk."

He praised Federal Reserve Chairman Ben Bernanke's actions in coordinating a liquidity infusion with four other central banks, and he said the U.S. is still "the most secure investment environment in the world."

Zell spread blame for the mortgage mess between the banks and rating agencies, calling the mortgage-securitization craze "a giant game of musical chairs."

And he had harsh words for the way some asset holders are treating their mortgage assets, saying "accounting is taking over for reality."

Pointing out that the mark-to-market process has produced huge writeoffs, not cash losses, Zell said he'd been offered some assets that had been discounted to zero value on balance sheets, even though they were still paying out income.

Zell sees foreign buyers, especially from the Middle East, coming in to recycle their oil dollars into U.S. assets, "unlike the 1970s when they deposited their cash into Citibank, which lent out the money to Latin America." He predicted that 2008 will be a year of "strong currencies buying weak currencies," and said that's nothing to be afraid of.

When it comes to real estate, he figures the recovery in housing will come in early 2009, and he predicts that current commercial real estate owners will benefit from the fact that the crunch has halted many developments, cutting into future supply.