Zell looked to 1990, when he asserted that the "traditional lenders" left the market, leading to a series of equitization in the public market. His point was simple: There is opportunity for a lot of private commercial real estate companies to go public. "If the private investor can take the dilution" then these companies could go this route. The issue is broader, however, as many of the private investors are "backed by institutions" he said, and can stay overleveraged. There is an incentive for the private investor to take the 15% to 20% "hit" on their profit by going public, but not necessarily for the institutional investor whose timeline is much longer.

Zell positively assessed the viability of REITs in the market right now. "A REIT is nothing more than a stock," he shrugged it off. "And stocks go up and stocks go down." He felt this was a good lesson for those in the industry that didn't know, expounding, "The name of the game was liquidity. Liquidity is value." Looking at REITs, Zell saw them in a great position. "And you may not like the price that it's liquid at, but it's liquid."

Zuckerman agreed heartily, pointing to the need for cash in the market, "A lot of REITs have a lot of cash." Zuckerman mitigated his optimism, saying, "I'm not sure there will be IPOs," but he saw some good opportunities for REITs in the short-term. Zell resounded the lesson, "the market has told you that large scale company's can raise capital without" a lot of dilution.

As another positive, Zuckerman looked beyond 2009 and focused on the trends of the real estate industry currently and historically. "Real estate is an entrepreneurial industry," he explained, continuing, that when the entrepreneurial element diminishes in some companies, there is an opportunity for other companies to merge and see growth. Zell agreed, predicting a future showing either a few untenable companies out of touch or 20 to 30 major players that represent the true market.

While Zell held the business line of a non-governmental intervention into industry, Zuckerman added a few caveats to his displeasure on DC's interference, which Zuckerman felt was necessary albeit at times ungainly and clumsy. Zuckerman noted that banks in particular have a lot of exposure and may want to protect against another downturn. This was an unknown in the marketplace, Zuckerman explained, as banks were uncertain themselves of some of their own loan portfolios, which will result in stringent credit markets for a little while. With that in mind, Zuckerman feels the infusion of cash from the government was the right thing to do and that many of the poorer measures that the government has enacted--Henry Paulson's lack of over site on the $700-billion bailout and slabs of pork hung onto the stimulus package--were political faults of the US, not necessarily indicative of a bad economic policy of bailing out certain companies. Although, it is safe to say that Zuckerman, an editor by trade, dislikes their verbiage, "Bailout, could you imagine a worse term?"

Zell, still contended that the government should keep its nose out of business, likening their involvement to a eventual evolution to the French economy. Zuckerman, however, saw it differently and politically, explaining that it is "impossible politically" to not stay involved. Zuckerman pointed to Europe as a case in point, where lack of involvement has caused a deepening of the economic harm and will cause that continent much more strife getting out of this mess, whereas the US is already seeing positive results from their early involvement, however faulted some aspects of it may be.

Zuckerman harped on the speed of the crisis--how quickly things began to sink as soon as Lehman Brothers was allowed to fail--it was unpredictable the rapidity of the failing markets. The government's action, he asserted, saved the financial system. Everyone's government is going to be involved in some way, he expressed as a fact of our current situation, "We don't live in an earlier era."

Instant Insights /

Zell, Zuckerman Spar on Recession, TALF

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