If you ask most investors who they think is the biggest player in the real estate industry, the first name for many will be Sam Zell. Renowned real estate investor and entrepreneur passed away recently at the age of 81.
His legacy is vast. Many have referred to him as the “Grave Dancer” because Zell took seemingly dead property and breathed new life into them.
Sam Zell’s success started at an early age
When Sam was young, his first entrepreneurial endeavor was to mediate in Playboy magazines. He was able to buy them in Chicago for $.50 and then resell them in the suburbs for $3.
At the University of Michigan, he paid for his room and board by persuading the landlord to be the property manager for the building. Sam got to live for free and even got paid to manage the apartment. He was house hacking before it was cool.
By the end of law school, he owned three apartment buildings and had management contracts with other landlords. Sam practiced law for four full days and then quit his job to focus on his real estate business.
One thing Zell always relied on was the study of demographics and how they related to demand. He saw that college towns were growing and there was a housing shortage, especially for students. Sam raised the money and bought a large apartment building. He became a millionaire at the age of 30.
Sam was one of the pioneers of real estate investment trusts (REITs), which brought liquidity to the markets and introduced real estate as a tradable asset on Wall Street. This brought even more attention to real estate as an asset class and helped raise even more money for the projects.
Of course, everyone talks about the massive sale of the Equity office property for $39 billion. This was prescient, as he was able to secure a premium price at the height of the market through a bidding war. Blackstone won the battle, paying $55.50 per share. The first offer came from Vornado at $40 a share.
He also focused on poorly performing businesses, bought them cheaply, turned them around, and then sold them. Zell applied the same principles he learned from real estate investing to the corporate acquisition market.
Many might guess that Sam had a crystal ball. But, they would be wrong. No one bats a thousand. He bet on the Chicago Tribune and failed. It was an asymmetric bet and he was not really affected by the settlement of the deal.
Sam knew it was a worthwhile risk based on the risk/reward profile of the deal. He risked $300 million to make $6 billion. Zell said he would make that bet every time.
The “real” Sam Zell about whom little is known
Part of Sam’s success was his lack of arrogance. You would think that someone as rich and powerful as him would be egotistical, but that was not the case. He talks about his successes as matter-of-factly as about his failures.
And while he is considered a titan in the investing world, I’m going to focus on one little-known fact about Sam. He was a creatively gifted person. Not many people know that every Christmas, Sam’s sends custom-made gifts to close friends, co-workers, and business associates. These were sculptures of elaborate automata—moving, mechanical music boxes with customized lyrics. The message revealed by the gift was Sam’s thoughts on the coming year and which direction the market was headed.
Looking back at his life, a few things come to my mind. One, they identified undervalued assets. Two, he understood the supply and demand related to those assets. Those two basic skills, when applied, will make any investor a millionaire.
Rest in peace, legend.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
