U.S. economic growth and low unemployment may appear encouraging, but widespread under-employment betrays underlying areas of weakness in the market, according to real estate mogul Sam Zell.
Zell, during a June 6 keynote at NAREIT's REITWeek in New York, predicted that interest rates will likely increase in the coming months at a slower pace than most expect.
"I think the economy is more fragile than maybe people are giving it credit for, and I think therefore able to absorb less escalation in interest rates," Zell said.
Interest rates will rise only slowly "not because that's what the government wants, but because it has no choice," he added. "So yes, I think it happens very slowly, very deliberately, with great trepidation."
Zell attributed the relative dearth of go-private deals involving public real estate investment trusts — many have expected to see more given REITs' low share prices of late — to trepidation about the economy and investors' hesitation to increase leverage in current market conditions to execute a deal. Perceived discounts among the public REITs are not sufficient to overcome that hurdle, he said.
"Maybe the 20% discount is telling us that interest rates are going up," Zell said. "And if they are going up, then the private market is sure to follow."
When the conversation turned to politics, Zell praised U.S. President Donald Trump as a policy-maker — his success prioritizing tax reform and rolling back the Dodd-Frank Act, in particular — and for his success adding "a few innings" to the real estate and broad business cycles, but he withheld praise from Trump in other respects.
"Has he been a great president? No," he said. "Has he said a lot of stuff that he's gone back on? Yes."
