• This is a partial transcript from "Your World with Neil Cavuto," June 9, 2004, that was edited for clarity.

    TERRY KEENAN, FOX ANCHOR: Welcome back, everyone. I’m Terry Keenan. Neil Cavuto is taking a bit of a break, resting that voice after a very successful book party here in New York City yesterday.

    Well, turning to the real estate market right now, if you want an expert take on real estate, we have to look no further than Chicago billionaire Sam Zell. With over a quarter of a million apartments and nearly 130 million square feet of office space under his umbrella, Sam Zell is the nation’s largest landlord. Earlier, Neil asked him why he is so bullish on the real estate market and on the economy.

    (BEGIN VIDEOTAPE)

    SAM ZELL, EQUITY OFFICE PROPERTIES CHAIRMAN: Commercial real estate is getting better. As you saw by the jobs report last week, we’ve now added almost a million jobs in the last three months. That translates into higher demand for office space and higher demand for multi-family housing.

    NEIL CAVUTO, HOST: What about right here?

    ZELL: You mean here in Chicago?

    CAVUTO: Yes.

    ZELL: The office market in Chicago is a little bit behind the rest of the country. And the multi-family market is also a little bit behind in terms of catching up. But I think overall, the fundamentals in the real estate market today are significantly better, and particularly in office space. There is almost no new supply. So I think things will start to balance out.

    CAVUTO: The Fed is going to tighten, we know that. We don’t know how much it’s going to tighten. What do you think?

    ZELL: Well, I think that whenever you asked about tightening, you also have to deal with A, B and C. And so I think that what we are seeing, as in every period when there have been a lot of vacancies, the A buildings have a lower vacancy rate than the B, and the B have a lower vacancy rate than the C. And currently, the A buildings are pretty much getting full. And that’s good for the overall business and, particularly, good for us, because that is this quality building we own.

    CAVUTO: Anything worry you right now?

    ZELL: Well, obviously, you know, I’m a little concerned about inflation. I think the CPI has understated the level of inflation. I mean, I know in the office building business, we’re probably looking at a 30 percent increase in the cost of reproduction in the last 18 months. And ultimately, that translates into the Consumer Price Index.

    CAVUTO: The political environment, do you find that upsetting for your industry?

    ZELL: Well, if you mean the high level of partisanship, you know, I pride myself on being somewhat of a patriot. And so I find the level of animosity difficult to take. But I think as a society we are learning to take more of it and ignore more of it.

    CAVUTO: Chicago versus, let’s say, the rest of the country, how does it look?

    ZELL: I think Chicago was a little slower to be hurt in the recession. I think it is a little slower coming back. But remember, this is the transportation center of the United States. This is the -- you know, heavy manufacturing involvement here. And I think that the numbers seem to show that we are seeing a recovery. And Chicago in particular, being a 24/7 city, I think is going to do much better than, perhaps, the surrounding area.

    CAVUTO: What if rates double, Sam, from where they are now?

    ZELL: I think the question is, which rates? If the 1 percent rate doubled to 2, I don’t think anything happens. If a 10-year, which is currently at 4.80, doubled to 9.60, we’d have a lot of problems if it happened quickly.

    CAVUTO: If that happens here in Chicago, what would the fallout be?

    ZELL: Well, I don’t think Chicago is any more or less vulnerable to rates than the rest of the country. And it’s a historical entrepreneurial center, and with a lot of resiliency. So I wouldn’t expect Chicago to be more or less impacted than anywhere else.

    CAVUTO: Back in New York, with the World Trade Center, what happened? Should we build something huge or what?

    ZELL: Well, I have been asked that question before and, frankly, if you look at the history of the World Trade Center, you look at the history of a failed investment. It was a loser from the minute it was built. There was never any demand for 10 million square feet in downtown Manhattan. There still isn’t.

    There was one moment at the very top of the bubble when it was full and in demand, and that is the moment the port authority decided to sell it. Good timing. But in the end, I don’t think there is any economic justification for replicating that many square feet in that location.

    (END VIDEOTAPE)

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