Sam Zell, appearing on CNBC’s Squawk Box earlier this month, reiterated several interesting points about current market conditions and trends in the commercial real estate sector:

  • We haven’t built anything in the U.S. since mid-2007, and except for some apartments we are not going to build anything significant for another two to three years.
  • Existing space is being filled at rates 20-30% lower than 2007.
  • Commercial real estate is not the next shoe to drop – you don’t have destruction without oversupply and we don’t have oversupply.
  • There is a direct correlation between filling of buildings and the end of pretend and extend – until now banks have been able to defer dealing with issues but when buildings are filled they have no need for the owner anymore. This will lead to what he calls “delusion is the solution deals.”
  • There is not a market yet and we have an overleveraged scenario because of 0% interest rates.
  • There are a lot of assets that in another arena would have been REO; banks are feeding properties into the market very slowly. If you keep supply short, you can keep prices high.
  • For owners who overleveraged their real estate this has been a disaster but he doesn’t see any real bargains out there and doesn’t see that changing. He hasn’t swooped in and bought at 20-40 cents on the dollar as was the case in 1990-91.

Bliss Morris, an expert with the nation’s leading loan sale advisors, First Financial Network, appeared on Squawk Box the same day and had this to say:

  • The numbers for loan sales are going to double this year. In 2010, $26 billion in various loans were offered for sale with about 50% selling.  In 2011, that number will jump to $50 billion and Morris anticipates about 70% will be sold.
  • There is a disconnect between financial institutions and buyers in the sense that the institutions took time to write down that debt. This year we expect the ratio will go up to about 70%.
  • Bankers they work with understand the value of their assets – it’s just a matter of time when they can write it down to where book value matches market price and there can be a clearing. Once we see that clearing, more recovery will take place.
  • When asked whether anything could derail the current recovery, Morris indicated that she was cautiously optimistic – a glass half full sort of gal. In 2008, the failures were mostly residential. Now we are starting to see commercial failure, but good news is on the horizon. Morris cited a recent announcement in CMBS with the least percentage uptick in delinquencies of loans at about 5 basis points.