Zell says real estate may see weakness in 2009

By Ilaina Jonas

NEW YORK, April 18 (Reuters) - The commercial real estate industry should expect another two years of good times but may see some weakness starting in 2009, real estate mogul Sam Zell said on Wednesday.

"If I were a betting man, I would look to the first quarter of 2009 with some degree of skepticism," Zell said at the New York University 12th Annual REIT (real estate investment trust) Symposium in New York.

Earlier this year, Zell sold Equity Office Properties Trust to Blackstone Group for $23 billion plus the assumption of debt in the biggest REIT deal ever.

Zell is the chairman of Equity Residential (EQR.N), an REIT that owns apartments, as well as heading a number of real estate and other ventures domestically and abroad. He is working to purchase media company the Tribune Co. TRB.N, a deal he declined to discuss.

Zell said the low U.S. unemployment rate, which fuels demand for office space and apartments, is bound to start rising in the next few years and that a new presidential administration also could affect the overall economy.

"As we see unemployment grow, (apartment buildings) along with office space will be the most affected on an ongoing basis," Zell said.

"If I were looking for potential periods of weakness, I would expect that the real estate industry as a whole will get through the next two calendar years relatively easily and will face more of a challenge beginning in 2009," he said.

Commercial real estate has for the past couple of years been riding the upward part of its cycle, with rising rents and asset prices.

Meanwhile, the U.S. residential housing market faces increasing problems from foreclosures resulting from subprime loans given to those with risky credit histories.

"Everyone in the world made all these dumb subprime loans," Zell said.

"All subprime loans were about the hot potato game," he said, describing loans that were quickly sold, repackaged and securitized to be sold again.

In commercial real estate, "I think there's a certain amount of that in our industry today, where people are really stretching limits," Zell said.

While Zell said he didn't think the commercial real estate industry would see lending problems rise to the severity seen in the residential market, he did say lenders will begin to raise their standards to compensate for risk.

"What I'm talking about is an appetite for risk," he said. "In past periods, lenders really cared about who they lent to. I think some difficulties in the future are likely to bring us back to a similar scenario in the future."