Sam Zell's Hard Reality on Commercial Real Estate

Crain's Chicago Business reports:

"From 2003 to 2007, 50% of the institutional real estate in the U.S. traded. That 50% . . . ended up being overleveraged by virtue of the financing that was available at that time. Even historic all-cash buyers like Calpers . . . played the leverage game instead of just buying for cash. Today . . . there are very few 2003-to-2007 financings that are above water."

The availability of cheap capital artificially inflated prices, he added.

"The idea that a piece of land was worth $50 per buildable foot (at the beginning of the boom) and at the end it was worth, theoretically, $700 per buildable foot really brings into question the whole issue of valuation. Across the board, we all drank too much Kool-Aid, and we have an in-place structure today where financing is difficult . . . because the economics don't justify it."

You'll want to read the whole article , Zell has an interesting prediction on when real estate will recover.