WHEN: Today, Wednesday, October 8th at 4:30PM ET
WHERE: CNBC's "Closing Bell with Maria Bartiromo"
Following is the unofficial transcript of a CNBC interview with Equity Group Investments Chairman, Sam Zell, on CNBC's "Closing Bell with Maria Bartiromo."
All references must be sourced to CNBC.
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BARTIROMO: LAST TIME WE SPOKE YOU SAID WE WEREN'T IN A RECESSION. WHERE DO YOU STAND NOW?
ZELL: WELL, I THINK IT'S -- THE SITUATION HAS CLEARLY CHANGED AND I THINK THAT WE ARE LIKELY TO HAVE GONE INTO A RECESSION IN THE LAST COUPLE OF WEEKS. AND I THINK THAT IS VERY MUCH THE RESULT OF ALL OF THIS ANGST AND PANIC THAT'S BEEN GOING ON AND IT BASICALLY MEANS THAT EVERYBODY PULLS BACK. EVERYBODY IS WATCHING THE STOCK MARKET ALL DAY, THEY ARE NOT MAKING TRANSACTIONS.
BARTIROMO: LET ME ASK YOU ABOUT THE RATE CUT TODAY AND THE COORDINATED RATE CUT AROUND THE WORLD. DO YOU THINK THAT WILL WORK? WERE YOU SURPRISED?
ZELL: I WASN'T SURPRISED. AS A MATTER OF FACT, I JUST TALKED ABOUT IT LAST NIGHT. I THINK -- I THINK THE WHOLE WORLD HAS BEEN WAITING FOR A COORDINATED RESPONSE AND THIS IS A BIG DIFFERENCE, FOR EXAMPLE, BETWEEN NOW AND 1932. IN 1932, YOU EFFECTIVELY HAD THE WORLD OPERATING INDIVIDUALLY COUNTRY BY COUNTRY. WE PASSED THE SMOOT HAWLEY ACT WHICH BASICALLY RAISED TARIFF BARRIERS AND IT BECAME A BEGGAR THY NEIGHBOR ENVIRONMENT. THE WORLDWIDE UNIFIED RATE CUTS IS EXACTLY THE OPPOSITE. AND I THINK IT'S A VERY POSITIVE EVENT AND A REFLECTION OF THE FACT THAT NO COUNTRY IN THE WORLD VIEWS THIS AS AN OPPORTUNITY TO "TAKE ADVANTAGE OF THE CURRENCY SWINGS THAT COME FROM LOWERING OF INTEREST RATES." SO WHEREAS LOWERING OF THE U.S. INTEREST RATES BY HALF A POINT MIGHT HAVE NORMALLY WEAKENED THE DOLLAR BUT IT DIDN'T WEAKEN THE DOLLAR BECAUSE THERE WAS A COORDINATED EFFORT ACROSS THE WORLD.
BARTIROMO: LET ME STAY ON CREDIT FOR A MINUTE BECAUSE LENDERS REALLY ARE UNDER PRESSURE. BECAUSE OF THE 20% DECLINE IN LOAN PRICES PUNISHING BORROWERS IN JEOPARDY OF BREAKING THEIR LOAN AGREEMENTS. S&P NAMED TRIBUNE SAYING 135 COMPANIES ARE IN DANGER OF BREACHING TARGETS SET BY THEIR BANKS. MOODY'S INVESTOR SERVICES, YOUR TRIBUNE, LEON BLACK'S REAOLOGY MAY SOON TRIP THEIR COVENANTS. IS THIS TRUE? YOU SEE THIS AS A REAL ISSUE?
ZELL: WELL, I THINK ANYTHING IS POSSIBLY TRUE, AND UNTIL SOMETHING HAPPENS, NOTHING IS TRUE. I THINK WHAT THESE GUYS ARE GIVING YOU IS THEIR OPINIONS AND CERTAINLY I CANNOT TELL YOU WHAT THE NEXT PERIOD HOLDS, AND WHETHER IN FACT SOMETHING LIKE THAT MAY OR MAY NOT HAPPEN. OBVIOUSLY, TELL ME HOW DIFFICULT THE ECONOMIC CONDITIONS ARE GOING TO BE, TELL ME HOW MUCH LONGER WE ARE GOING TO IN EFFECT SEE THE KIND OF ADVERTISING EROSIONS WE HAVE SEEN, AND THEN I THINK I CAN GIVE YOU A BETTER ANALYSIS OF THE NEWSPAPER BUSINESS.
BARTIROMO: I KNOW YOU HAVE PROBABLY SEEN THIS, MIKE SIMONTON SAYS YOU NEED TO SELL THE CHICAGO CUBS IN ORDER TO RAISE REVENUE FOR TRIBUNE IN ORDER TO AVOID BREECHING THE COVENANTS.
ZELL: WELL WE INTEND TO SELL THE CHICAGO CUBS, AND WE EXPECT THAT WE WILL SELL THE CHICAGO CUBS BEFORE THE END OF THE YEAR.
BARTIROMO: ARE YOU IN TALKS RIGHT NOW?
ZELL: AH, WE RAN A PROCESS, WE HAD TEN BIDDERS. WE TOOK THE TOP FIVE AND HAVE BEEN WORKING WITH THOSE FIVE. I EXPECT THAT PROCESS WILL REVERT TO MAYBE TWO PEOPLE RELATIVELY SHORTLY AND THEN I EXPECT WE WILL HAVE A TRANSACTION.
BARTIROMO: LET ME ASK YOU ABOUT REAL ESTATE RIGHT HERE SAM. WE HAVE SEEN SO MUCH DRAMATIC CHANGE IN THE RESIDENTIAL PART OF THINGS. LAST TIME WE SPOKE YOU SAID WE ARE NOT NECESSARILY SEEING THAT IMPACT ON THE COMMERCIAL SIDE OF THINGS, DO YOU STILL THINK FEEL OR HAVE WE SEEN AN IMPACT?
ZELL: WELL, I THINK THAT THE COMMERCIAL REAL ESTATE MARKET IS DRAMATICALLY BETTER THAN THE RESIDENTIAL MARKET FOR SALE. THE RESIDENTIAL MARKET FOR RENT IS TERRIFIC. WE ARE THE LARGEST APARTMENT COMPANY IN THE UNITED STATES. WE ARE RUNNING 95% OCCUPANCY, AND WE CONTINUE TO HAVE DEMAND. THERE IS NO QUESTION THAT IF WE GO INTO A RECESSION OR IF UNEMPLOYMENT INCREASES, THAT WILL HAVE A NEGATIVE IMPACT ON APARTMENT RENTS.
BARTIROMO: WELL YOU WERE A SELLER WHEN THINGS WERE REAL EUPHORIC. YOU MADE THE RIGHT CALLS DURING THE BIG BOOM IN REAL ESTATE. ARE YOU A BUYER RIGHT NOW?
ZELL: I'M NOT OF EQUITY REAL ESTATE, BUT I AM A BUYER OF DEBT SECURITIES. AND WHERE I THINK AGAIN THE DEBT SECURITIES HAVE BEEN SIGNIFICANTLY PRICED.
BARTIROMO: HOW TIGHT DO YOU SEE CREDIT RIGHT NOW? YOU'VE GOT BANK OF AMERICAN UNDER PRESSURE DURING THIS OFFERING, YOU'VE GOT GE GIVING THESE GREAT TERMS TO BERKSHIRE, 10% FOR BUFFETT'S BERKSHIRE HATHAWAY. WHAT DO YOU THINK THESE SITUATIONS INDICATE?
ZELL: WELL FIRST OF ALL, THERE IS NO QUESTION. WELL FIRST OF ALL THE QUESTION YOU ASKED ME WAS HOW TIGHT IS CREDIT.
BARTIROMO: AND WHAT ABOUT THE COMMERCIAL PAPER MARKET?
ZELL: RIGHT, AND MY ANSWER TO YOU IS, WHAT CREDIT? I THINK THE ANSWER IS THAT AT THE MOMENT THERE IS VERY, VERY LITTLE CREDIT IN THE MARKET PLACE AND THE INSTITUTIONS ARE FULFILLING THEIR PREVIOUS COMMITMENTS, BUT CERTAINLY NOBODY IS LOOKING TO TAKE ON INCREASED EXPOSURE. AS FAR AS THE GE DEAL IS CONCERNED, I THINK THE MOST IMPORTANT THING ABOUT THE GE DEAL IS THE FACT THAT IT CAN BE PAID OFF AT ANYTIME. SO WHAT IT REALLY IS, YOU CAN LOOK AT IT AS AN INTEREST RATE DEAL OR EVEN LIKE A SALOMON BROTHERS DEAL. IT'S REALLY VERY EXPENSIVE FINANCING, BECAUSE CLEARLY GE WILL PAY IT OFF AND PAY THE PENALTY FOR PAYING IT OFF AS QUICKLY AS THEY CAN. YOU KNOW, PROBABLY WITHIN A RELATIVELY COUPLE YEARS IS MY GUESS. SO I WOULD LOOK AT IT MORE AS EXPENSIVE BRIDGE MONEY TO IN EFFECT BOLSTER A NERVOUS MARKET RATHER THAN USE THAT AS AN INDICATION OF RATES WHERE OR WHAT COST TO CAPITAL IS.
BARTIROMO: MARK-TO-MARKET ACCOUNTING, YOU SEE THIS AS A REAL ISSUE IN TERMS OF HAVING AN IMPACT AND ALREADY HAVE HAD AN IMPACT ON THE TURMOIL ON WALL STREET, RIGHT?
ZELL: MASSIVE IMPACT. MASSIVE IMPACT. I THINK THAT IT'S ONE -- YOU KNOW, ONLY IN THE LAST FEW MONTHS HAVE WE ACTUALLY, YOU KNOW, SEEN STORIES ABOUT IT. I THINK I WAS ON YOUR PROGRAM A YEAR AGO, AND I TALKED ABOUT THE TYRANNY OF MARX. AND NOTHING DRAMATIC HAS IMPROVED. EVEN THE BAILOUT BILL HAS, YOU KNOW, KIND OF WISHY-WASHY LANGUAGE ABOUT TRYING TO REDUCE THE IMPACT OF MARX. BUT IF YOU GO BACK TO WHAT I SAID BEFORE ABOUT, LET'S SAY, YOU KNOW, MORTGAGE-BACKED SECURITIES, IF A MORTGAGE-BACKED SECURITY IS TRADING AT 20, AND THE VALUE OF IT IS 50, THAT'S A 30% HIT. THAT -- YOU KNOW, NO SYSTEM CAN ABSORB.
BARTIROMO: RIGHT.
ZELL: AND THE IDEA OF MARKING ALL OF YOUR ASSETS TO FIRE SALE PRICING, IT JUST CHALLENGES CREDIBILITY.
BARTIROMO: AND MY THANKS TO SAM ZELL.
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