Uneasy Alliance For Recovery, Zuckerman, Zell Say

Private business and the government have forged an uneasy alliance that has restored a fragile confidence, two titans of media and real estate said Thursday.

AP Sam Zell

Speaking before a group of suddenly optimistic real estate professionals, Mort Zuckerman, owner of the New York Daily News and editor of US News & World Report, and Sam Zell, head of Tribune Company, said the worst of the credit crisis has passed.

"There will be a recovery and we will do much better than anywhere in the world," Zuckerman, chairman of Boston Properties, said. "That will reinforce our recovery."

"People are saying, 'I'm not dead, I'm not dead, so let's go do something," Zell, who is also chairman of Equity Group Investments, added.

The two engaged in a lively exchange of ideas before the National Association of Real Estate Investment Trusts, a group on a sharp rebound in recent weeks since government liquidity programs have paved the way for REITs to raise capital.

While the two spoke little of their respective troubled media operations--"I told him not to go into media," Zuckerman joked--they instead focused on the state of the economy, positive prospects for REITs and the real estate industry in general.

Both gave the government differing grades for its performance during the credit crisis.

Mort Zuckerman

While neither disputed that government involvement was needed, Zell said too much intervention will stifle innovation.

"Can you imagine what's going to happen to Government Motors when they have 535 stockholders (in Congress) and they all have an opinion?" Zell said. "The idea that the president of the United States has an opinion on the salary of the head of Citicorp--that's ridiculous."

But Zuckerman said the government did what it had to in the face of an economy that had some worried the system was about to collapse, though he too expressed concern that the efforts could go too far.

"You cannot expect the government to provide billions and billions of dollars and not play a role," he said. "We are living in a world in which we are looking for a government agency to provide an ungodly amount--something that nobody ever contemplated ... The government's going to be involved. It's just going to be a fact of life."

They were less worried about the future of REITs.

For the past two years REITs have gotten crushed along with the rest of the industry. But they've gained more than 50 percent this year as liquidity has returned to the market.

"As far as I'm concerned the REIT model has worked," Zell said. "A REIT is nothing more than a stock. Stocks go up and stocks go down."

The two differed somewhat on what the real estate deal-making climate would be for the remainder of the year and into 2010.

While Zuckerman said government efforts to increase credit availability would help the process, Zell worried that too many property owners whose debts outweigh the value of their real estate would stand in the way of transactions.

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Zell said the key, then, will be "staying power" to succeed in real estate.

At the same time, the two doubted there would be a lot of new offerings in the REIT field, but rather see a possible consolidation as those with weaker cash positions will succumb to publicly held companies able to raise capital more easily.

"If the horizon of the buyer can be longer than the horizon of the seller, a lot of transactions can be made," Zuckerman said.

But for those who came to hear about the future of the REIT industry, the news was all good.

Zell said the industry didn't really get off the ground until 1992, after the savings and loan crisis had passed and many of the traditional sources for real estate financing disappeared.

The REIT industry, with its accompanying tax breaks and myriad investment opportunities, stepped in as a way to raise cash through public offerings rather than having to go to a bank.

As the worst of the economy crisis passes, the future is likely to be strong for REITs, Zell and Zuckerman said.

"For an industry, 17 years is not a very long period of time," Zell said. "The last 12 months have been a test and the industry has passed, and frankly it has passed with flying colors."

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