Tag: sam zell

• Sam Zell dies at 81

  Sam Zell, the billionaire real estate investor, died this week at the age of 81. That seems young to me. Or maybe I’m just being overly optimistic about life expectancy. This is around the US average.

  Whatever the case, if you work in real estate, you likely know/knew of Sam. In my case, he spent a lot of time at Penn after he permanently endowed the real estate center (under both his name and his late business partner’s name).

  I used to go and listen to him speak at least twice a year, and I would hang off his every word as a young student of real estate. “So wait, how does this all work?”

  It was also at this time that he sold Equity Office to Blackstone for $39 billion (back in 2007, it was the largest private equity deal in history). Sam’s explanation for doing this deal was that Blackstone offered him more than what he thought the portfolio was worth, so he sold it. He took no credit for good market timing.

  If you’ve ever heard Sam speak, you know that he’s incredibly direct. Generally, he also didn’t seem to give a fuck, and was happy being the only person in a Hawaiian shirt among a sea of blue and black suits.

  In fact, he’s largely the reason that, as students, we used to all joke that the richer the speaker, the more funny and honest they would be. “Come on, let’s go to this one. She’s rich.” I guess this is just what happens when you no longer have anything to prove.

  But none of this is to say that he didn’t care. He cared a great deal about the school and about helping young students. And for that, I say: thank you Sam. Thank you for being generous with your time.

  2023.05.19

• Am I being too subtle?

  Billionaire Sam Zell has a (relatively) new book out called, Am I Being Too Subtle?: Straight Talk From a Business Rebel.

  I haven’t read it yet, but I’ve added it to my queue. I can, however, tell you that I always enjoyed listening to Zell speak candidly about business and real estate when I was in graduate school and he would come in. He was never one to mince his words.

  He’s making the rounds right now to promote this new book and he recently sat down with William D. Cohan of the New Yorker. Not surprisingly, the Chicago Tribute debacle formed a large part of the conversation – up until Zell got tired of talking about it.

  “That is the L.B.O. that drove this company into bankruptcy.” Zell said, of the Tribune experience, “I made a bet. I thought the bet was reasonable. I underwrote it appropriately. I was wrong.” He lost his entire investment.

  But this misstep did nothing to phase Zell’s contrarian approach to business and life:

  Zell attributes his wealth to a prescription articulated by any number of successful business people: zigging when everyone else is zagging. It’s a replicable formula, he says, and he has little patience for people who complain that it was somehow easier in the good old days, or that the moment for such opportunities has passed. (His earliest successes came from investing in real-estate assets that others shunned.)
  

  He refuses to listen when he’s told he can’t do something. “I spent my whole life listening to people explain to me that I don’t get it,” he says. “I look at the Forbes 400 list, and if I eliminate the people who inherited the money, everybody else went left when conventional wisdom said to go right. How did I do what I did? By not listening to anybody else.”

  It’s the Sam Zell way.

  2017.07.04

• The democratization of real estate

  In 1960, real estate investment trusts were created in the U.S. with the goal of democratizing real estate ownership. Here’s how Yale professor Robert Schiller described it:

  “REITs were created by law in 1960 to democratize the real estate market and make it possible for a broad base of investors to participate in this huge asset class. That was absolutely the right thing to do, because portfolio theory tells us people should diversify across major asset classes, and real estate is one of them.”

  But a lot of things have changed since 1960. We now have the internet. 

  And one of the things that the internet is very good at is creating peer-to-peer networks that connect supply and demand without the same kind of intermediaries. This could be people who have MP3s with people who want MP3s or it could be people who have real estate with people who are looking to invest in real estate.

  So with the advent of crowdfunding in both the U.S. and Canada, I think we are at the dawn of another era of real estate democratization. Already we have seen the first crowdfunded real estate development project and it happened at a much smaller and local scale than is usually the case with REITs.

  Similarly, we are also seeing companies emerge – such as HomeUnion in the U.S. – that allow people to build their own rental portfolios by directly investing, either fully or partially, in real estate. Again, there are differences here compared to how REITs typically operate.

  When I was in grad school at Penn and Sam Zell used to come in and talk to the students, he used always mention how when he started out in real estate (1960s) the industry was disproportionately controlled by a small number of players. That’s been changing ever since and it looks like that trend will only continue.

  2015.11.25

• Sam Zell’s Equity Residential sells 23,000 suburban apartment units

  Earlier this week it was announced that Sam Zell – the billionaire who initially made his money in real estate – is selling over 23,000 apartment units to Starwood Capital Group (Barry Sternlicht) for $5.4 billion. The units are all controlled by Zell’s company, Equity Residential.

  This is interesting for a number of reasons, but I’d like to point out two of them today.

  Firstly, Zell is famous for selling another one of this companies, Equity Office Properties Trust, to Blackstone for $23 billion in 2007. This was right before the market fell out and so some people are asking whether this signals the end of the apartment run. Average apartment rents in the US have increased roughly 20% over the last five years.

  But at the same time (and this is my second point), it might not be that at all. Instead, it could simply be a rebalancing of the portfolio. Here’s an excerpt from the Wall Street Journal:

  …Equity Residential has become “less aggressive as buyers of assets” in recent years, Mr. Zell said in an interview late Friday. Instead, it is getting out of suburban markets and into downtown urban centers, where young people are moving and where it is more difficult to build, he said.

  Most of the 23,300 apartment units in the deal, roughly a quarter of Equity Residential’s total, are low-rise and mid-rise units in suburban markets in and around southern Florida, Denver, Seattle, Washington, D.C., and Southern California. Analysts expect a significant amount of new supply to be concentrated in those markets in coming years.

  Of course, Sternlicht is buying these suburban properties and so he clearly has a different investment thesis. (The purchase price works out to be $230,600 per unit at a cap rate of roughly 5.5%.) But that’s what makes these deals so interesting to scrutinize. Nobody really knows what the future holds.

  2015.10.28

• How ethical is the trailer park business?

  When I was in grad school at Penn, real estate mogul Sam Zell used to come in and talk to students about once or twice every year. He permanently endowed the Samuel Zell and Robert Lurie Real Estate Center at the school and so there was a strong connection.

  Because of Zell, a few of us developed a theory that the entertainment value of a talk was more or less correlated with net worth. In other words, the richer the speaker, the funnier the talk. Zell, for example, would often come in jeans, a baseball hat and a hawaiian-like shirt, and drop f-bombs all throughout his talks. You can do that sort of thing when you’re worth a few billion and you’re signing the checks.

  But beyond just being entertaining, Zell shared a lot of insights about the businesses he was in, getting into (Chicago Tribune) and getting out of (Equity Office Properties). Some of those businesses turned out to be a disaster (Chicago Tribune), but others (Equity Office Properties), made him look like an absolute genius.

  One business that he always liked to mention though, was the manufactured home business–also known as the trailer park business. And that’s because, as chairman of Equity LifeStyle Properties, Zell is the largest mobile-home landlord in the US. They control 140,000 sites across 32 states and in British Columbia, Canada.

  The reason Zell likes this business is, quite simply, because it makes a lot of money and it’s growing. There are an estimated 12 million Americans living in trailer parks. That’s probably why Warren Buffet also bought Clayton Homes–another manufactured home builder–for $1.7 billion in 2003.

  But it’s not just the big guys who like this business, it’s entrepreneurs at all levels. In fact, I was just reading this article from New York Times Magazine about a couple of entrepreneurs who actually setup a school called Mobile Home University. The objective is to train aspiring entrepreneurs on how to profit from poor people in America:

  “The bottom line is Americans as a group are getting poorer,” he told his students — and while that’s bad news for those living on the economic fringes, it also means opportunities for those willing to take advantage of the trend.

  Just how poor? Here are typical rents:

  The typical tenant who rents from Rolfe and Reynolds pays $250 or $300 a month in lot rent and another $200 or $300 if also renting a trailer. “The trailer park is people’s last choice,” Rolfe says, “and we recognize that.”

  Now, trailer parks are not the sort of thing that architects and planners typically like to talk about it. They’re not sexy. They’re not urban. But as the article says, these guys are providing the “dollar store” of housing and making a lot of money doing it (annual returns of approximately 25%).

  But is targeting people with rock bottom credit ratings and no other housing options an ethical business model? (The article also talks about 10% a year rent increases.) I’ve personally always found these ethical questions to be difficult to take a stance on and so, for this one, I’m going to put it out to the ATC community. What do you think?

  2014.03.15