Posted by chicagomedia.org on April 15, 2009 at 14:37:23:
Billionaire Zell Says 'I Made a Mistake' in Purchasing Tribune
By Greg Miles and Brian Louis
April 15 (Bloomberg) -- Billionaire investor Sam Zell made what is acknowledged to be one of the best-timed investment decisions ever by selling his real estate empire at the peak of the market in February 2007. Now he says he made one of the worst 10 months later by purchasing Tribune Co.
"The definition if you bought something and it's now worth a great deal less, you made a mistake," Zell said in a Bloomberg Television interview today. "And I'm more than willing to say that I made a mistake. I was too optimistic in terms of the newspaper's ability to preserve its position."
Zell, 67, exited the U.S. office market by selling Equity Office Properties Trust to Blackstone Group LP for $39 billion including debt in the biggest leveraged buyout at the time. The sale earned Zell about $900 million. In December 2007, Zell and investors took Tribune private in a deal that gave the company $13 billion in debt. The company filed for bankruptcy in December 2008.
"I think you're going to recognize the fact that by filing for bankruptcy in December and being the first one, we also were able to stop the bleeding and preserve a great company.," said Zell of the owner of the Los Angeles Times and the Chicago Cubs.
"I think we're looking at every option at the Tribune Co.," he said. "It's very obvious that the newspaper model in its current form is not working. And the sooner we all acknowledge that the better. Whether it be home delivery, whether it be giving away content for free, I mean these are critical issues."
'Live Virus'
Zell said a merger of Tribune is unlikely now.
"That's like asking someone in another business if they want to get vaccinated with a live virus," Zell said. "There's not a long list of people who want to buy newspaper companies today."
In commercial real estate, values are down about 30 percent, Zell said.
"You're going to see a lot of change of ownership in commercial real estate" as a result of the once optimistic forecasts, he said. "It's more likely the banks will either foreclose or come up with some kind of restructurings that will ultimately allow the properties to trade."
Zell said defaults on commercial property loans aren't a problem because most debtors are current on payments.
"The problem is maturities, not carrying the real estate," Zell said.
Blackstone Deal
The Blackstone transaction capped a tumultuous period for Zell after his 2001 purchase of Spieker Properties, then the biggest commercial landlord on the U.S. West Coast. He paid $7.2 billion just as California's technology boom fizzled and cut Silicon Valley rents, causing Equity Office shares to lag behind other real estate investment trusts for the next four years.
Two years after the Blackstone deal, declining property values are again confronting landlords. Debt-laden developers are being forced to sell buildings and vacancy rates at U.S. offices, apartment buildings and retail centers have risen to their highest levels in at least four years. The Bloomberg Real Estate Investment Trust Index is down 57 percent during the past year.
Zell, chairman of Chicago-based apartment REIT Equity Residential, said there are signs the housing market may be starting to recover.
The single-family housing market is starting to "bottom out" and "this summer we'll see equilibrium," he said.
Last Updated: April 15, 2009 09:42 EDT