If you're nervous about investing in office buildings because of COVID-19 craziness, welcome to the club. Some would say we're in a risk-off phase -- people selling off their stocks in favor of tangible assets. How do office buildings fit in? And what's real estate king and billionaire Sam Zell, called the "forefather of modern real estate investment trusts," predicting?
1. Offices more likely to rebound than retail
Both the office and in-person retail sectors took a huge hit from shelter-in-place and lockdown orders during COVID-19. Between the two sectors, Zell predicted on CNBC's Squawk Box that office space will be the sector more likely to rebound because he believes that people will be returning to the office post-pandemic. He's not as sure about retail.
2. Employees will likely be required to return to the office
The Real Deal estimated that 62% of Americans worked from home during the height of the pandemic and that only 31% did so before the pandemic. Zell recognizes that many employees who tried working from home don't want to go back to the office. However, they probably will need to -- although perhaps in a hybrid form. If employers demand time spent in the office, then people will work in an office (either that or find a different employer).
With that said, Zell's investment company has not been investing in the office market of late. Zell noted there isn't a distressed-office sale environment now as there was when he was buying office space.
Image source: Getty Images.
3. Employees can be more productive in the office
"The office market was oversupplied before COVID ... and COVID has only added to it," said Zell. But he also says he doesn't believe working from home is a solution: "I don't think you can motivate by modem. I don't think you can assess people by Zoom." The ability to connect with people physically is the reason Zell thinks people will return to the office. The office provides a more positive working environment and allows for more work to get done, Zell said.
How Sam Zell did it
Zell has played his cards right his entire life (he's currently 80 years old) and now has something to say about office investing, something he knows a little about. In the late 1980s and early 1990s, Zell bought office buildings for 50 cents on the dollar. This was at a time when no one was touching them. Sound familiar? But in 2007, Zell cashed in and sold his 573 office properties for $39 billion to The Blackstone Group. Not too bad.
Investors like to follow self-made billionaires who made it big by investing. Makes sense. And Sam Zell, who's worth $5.9 billion, is an icon in the world of real estate. Zell currently owns Equity International, which has expanded beyond American real estate to include finance, energy, transportation, and media industries internationally.
Whether you're optimistic about office space as Zell says he is, believing people are more productive in the office, or whether you're not yet sold on that idea, believing people can be as productive working from home, as a real estate investor, you might want to watch for a distressed scenario in the office market. If that happens, you now know the answer to the question "What would Sam Zell (likely) do?"
