Zell, Sternlicht Debate Real Estate Markets

One hot topic, of course, was the sale of Equity Office Properties Trust by Zell to Blackstone for $36 billion in a cash stock deal, over a higher bid that had strings by a joint venture that included Vornado, Starwood and locally based Walton Street. Starwood and Walton dropped out when the bidding war intensified.

Zell defended the sale, saying he received a "godfather offer," meaning that the deal was better than the company had believed the stock was worth at the time. He said Blackstone is getting a 7% profit on sales of hundreds of office properties EOP had owned. Zell said his company would have received about that much by liquidation, but got the same result without having to pay broker fees.

However, he said the sale, and subsequent mergers and acquisitions by public companies into private entities, are not the harbinger of doom for the REIT firms. "I don't think this the end of the REIT era, rather, it's the reverse," Zell said. "In other industries when private companies take over public firms, you don't say that's the end of those markets. I thin 75% of those companies going private now will be back public in five years."

Both men agreed that foreign interest in US property is going to get bigger than ever. "Just look at our pricing, our country's for sale," Sternlicht said. "We're cheap to foreign markets. The Arabs have tons of money, the Russians have tons of money, the Chinese have a trillion dollars. The dollar is losing, we're going to have to get used to that fact." He said it's also difficult for the US to invest in foreign markets. "Other companies, like the automakers, are finding that out that their planned stay may be temporary. In China they went and taught them to build cars, now they're building their own."

Zell agreed that foreign investment is tricky. "We're probably the largest investor in Brazil and Mexico, but I wouldn't want to go into their court system," he said. However, he said the demand is great for US companies wanting to invest overseas, and that the US itself is still on a good track. "We're very unique in the world," Zell said. "I've traveled all over the world, Middle East, India, etc. Yes, they attack Bush for half an hour, but then say, 'Can you help me get a visa?' One key thing in the US is you can go bankrupt and still have a chance, try doing that in England, you're ruined for life. The Wal-Mart founder went bankrupt twice."

Zell said he's optimistic about the US economy until the first half of 2009. "You'll have a new president, it doesn't matter if their Republican or Democrat," Zell said. "That's when the system will be under the most amount of stress."