Zell says distressed real estate deals overpriced

Billionaire Sam Zell said he doesn’t see the “volume opportunity” to invest in distressed real estate that he’s witnessed in past property slumps as lenders extend troubled loans.

Real estate markets may experience “measurable turmoil” in the next few years, Zell, chairman of Chicago-based Equity International, said Thursday at a conference hosted by BMO Capital Markets Ltd.

“The pretends and extends are coming due,” he said. “In previous periods, the opportunity hit you in the face.”

Zell said “every single distressed asset I have seen” has been 25 percent to 40 percent overpriced. While U.S. office occupancies have risen over the past year and will continue to climb, Zell doesn’t expect rents to go up, he said.

The investor sold Equity Office Properties Trust in 2007 for $39 billion as the U.S. real estate market was peaking. Commercial property prices fell as much as 49 percent from their October 2007 high, according to the Moody’s/REAL Commercial Property Price Index, after credit contracted and the economic slump boosted the unemployment rate to more than 9 percent.

Zell said he doesn’t think the economy is in recession and that it will “muddle through” with low growth rates.