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Sam Zell builds on

An ailing stock market and a troubled economy are not keeping mogul Sam Zell from plowing ahead with an $845 million real estate mezzanine fund.

The investment vehicle, which will be managed by his real estate finance company, Capital Trust, will lend money to new and existing office buildings, hotels, regional malls, multifamily residential developments and neighborhood retail stores nationwide. "The commercial real estate business is in better shape in a postexpansion period than at any time since World War II," Zell asserts. "This is the first time since then that we've had a peak in the economy without an oversupply." He credits the current healthy balance of supply and demand to the virtual disappearance of S&Ls, which backed a lot of real estate development in the postwar period, and the elimination of many real estate tax subsidies. Zell, famously nicknamed "the Grave Dancer" because of his love for distressed properties, can't resist tossing a zinger at once-swaggering sectors, such as telecom, that now are gasping for air. Telecom companies have "as much debt as real estate did in the early 1990s. We've financed six guys for every niche," says the man who has made a fortune from others' mistakes.