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- What would Sam Zell invest in today?
What would Sam Zell invest in today?
What would Sam Zell do in the current market?
đź’Ľ Zells Angels
briefcase | invest smarter | Issue #133
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📢 "I made my fortune by turning right when everyone else was going left” — Sam Zell
On May 18th, the real estate industry lost a titan. Sam Zell was known for raising the dead, so to speak. Having the nickname “Grave Dancer” might have negative connotations, but Zell was renowned for resuscitating dying businesses and bringing them back to life.
And making them extremely profitable! In reality, Zell was more of a raising-the-dead entrepreneur rather than a vulture. According to sources, Zell was worth over $5B before his death.
Amidst the 2007 commercial real estate frenzy where office space was the belle of the ball (those were the days!), Zell was selling off a portfolio of offices to Blackstone.
David Roth, the owner of Vornado Realty Trust, was preparing a counteroffer for Zell’s office properties, 543 buildings to be exact, that Blackstone had agreed to buy for $36 billion ($48.50 a share). Zell found out about this potential bid, and goaded Roth with the following message:
Roses are red
Violets are blue
I heard a rumor
Is it true?
Love and kisses,
In response, Roth responded with his own realty poetry…
The rumor is true
I do love you
And the price is $52.
To see if this poem will rhyme
We should talk at a set time
While to talk like this is nifty
We should really talk at three fifty.
Forever yours,
But the love didn’t last long. In the end, Blackstone agreed to pay $39B ($55.50 a share), in what was the largest leveraged buyout in American history.
Today we’re going to do a little dance for a legend of our industry, and pay homage to his successes, with a focus on the future 🔮.
All savvy real estate entrepreneurs should ask themselves: What would Zell do today as an investor? But let’s start with a few quick backsteps.
Zells Angels: Early Beginnings
The son of Holocaust survivors, Zell was born in Chicago in 1941 and spoke candidly about WWII's impact on his parents and upbringing.
“Those unforgettable images were my introduction to the Holocaust…Looking back, I can see that they accelerated my maturity and gave me a sober awareness of the world. That film also went a long way toward helping me understand my parents’ orientation toward life — why they pushed so hard and were so determined for their children to succeed. Economic success had been critical in securing their freedom. They had escaped Poland in part because they had the means to do so — my father’s prescience in storing away money.”
🤠Nudey Mags: Auspicious Beginnings
Even at a young age, Zell displayed entrepreneurial tendencies. At 12, Zell would buy copies of Playboy magazine in bulk for 50 cents, then resell them to friends for $1.50-$3.
Zell got his first taste of real estate in college when he and a friend began managing student housing units. This began with 15 units, but quickly evolved into Zell buying, flipping, and renting distressed properties.
Upon graduating in 1966 from the University of Michigan, Zell personally owned over 100 rental units. Before returning to his hometown of Chicago, he sold his share of the property management business to a friend.
With a keen eye for untapped potential, Zell could always identify overlooked market segments (more on this later) and devise groundbreaking strategies to leverage their latent opportunities.
In 1968, Zell founded Equity Group Investments. A market crash in 1973, caused by overbuilding, affected multifamily residential real estate first, followed by other property types. This allowed Zell and his partner to acquire high-quality properties at low prices.
They built a valuable portfolio of apartments, offices, and retail buildings, eventually exceeding their previous valuation levels. They serviced their debt payments using the rental income from the properties.
This approach was innovative at the time, as most investors focused on flipping buildings for profit. Zell's strategy earned him the nickname "Grave Dancer."
Zell also pioneered Real Estate Investment Trusts (REITs), a market now worth over $1.3T in the U.S. alone.
“I did not invent the modern REIT industry, but I helped make it dance…The idea that real estate could graduate into the upper class of corporate America was absurd at the time. But by force of will, I knew we could get there.”
So what kind of dancing would Zell do in the current market conditions?
Zell's Investment Moves
Based on our analysis of Sam Zell's investment history and current market trends, we can make informed predictions about the assets he would invest in next. By turning right when everyone is turning left, here are the niche markets we believe Zell would be eyeing closely.
🏗️ Outdoor Storage - Stephanie Wright from New York University suggests that Zell might be interested in outdoor storage. These are large and require few employees, which makes them unpopular with cities and limits their growth. However, there is still a strong demand for them.
🏞️ Park and Prefab Homes - The same goes for parks of prefabricated homes, which was the first business Mr. Zell took public in 1993. People still buy these homes, but zoning laws restrict their growth. Once a home is installed on the property, homeowners rarely move it. If they do, the developer still owns the land and can replace the home with another one. Zell loved this model back then, and would still invest in it now.
👩‍💻 Proptech - As technology continues to revolutionize the real estate industry, it is highly likely that Zell would explore investments in proptech. This sector encompasses technologies such as artificial intelligence, virtual reality, and blockchain that enhance various aspects of property management, construction, and investment analysis.
đź“Š Emerging Markets - Zell has a history of venturing into markets that others overlook. With emerging markets poised for substantial growth, particularly in regions like Southeast Asia and Africa, Zell may be inclined to seek investment opportunities in these areas.
“I’m drawn to emerging markets because of their built-in demand. I’ve always believed in buying into in-place demand rather than trying to create it.”
🌿 Sustainability - Given Zell's emphasis on sustainability and environmental consciousness, it is probable that he would consider investments in sustainable infrastructure projects. This includes renewable energy installations, eco-friendly travel and transportation networks, and smart city initiatives.
đź‘´ Aging Population - With the global population aging at an unprecedented rate, investments that cater to the needs of seniors could be on Zell's radar. Innovative senior living communities, healthcare facilities, and technology-driven solutions for elderly care are all potential areas where Zell may see value and growth potential.
Ultimately, Sam Zell made many friends and enemies during his decades of real estate investing. One thing is for sure; he was a legend in the industry by resuscitating dying businesses and innovating new ways of investing in real estate.
So What? Let’s let Sam speak for himself (a few of these are featured on the briefcase office whiteboards)…
“Risk is the ultimate differentiator. I have always had a deep and complex relationship with it. I am not a reckless person, but taking risks is really the only way to consistently achieve above-average returns—in life as well as in investments.”
“While I was unaware of it at the time, my real compensation for that job wasn’t monetary. It was learning about and getting comfortable with rejection. And as I would later realize, indifference to rejection is a fundamental part of being an entrepreneur.”
“There’s a line from an old movie, Wheeler Dealers: “You don’t go wheeling and dealing for the money, you do it for fun. Money’s just a way of keeping score.” And that’s how I see it. I’ve always been much more drawn to the experience.”
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