If you asked most investors who they think the biggest player in the real estate industry would be, the name Sam Zell would be the first thing many would think of. The legendary real estate investor and entrepreneur recently passed away at the age of 81.
His legacy is vast. Many have referred to him as the “Dancer Killer” because Zell took seemingly dead assets and breathed new life into them.
Sam Zell’s success started at an early age
When Sam was young, his first entrepreneurial endeavor was refereeing for Playboy magazines. He was able to buy them for $0.50 in Chicago and then resell them for $3 in the suburbs.
At the University of Michigan, he paid for room and board by convincing the landlord to let him be the property manager for the building. Sam got to live for free and even got paid to run the apartments. He was breaking through the house before it got too cool.
By the end of law school, he owned three apartment buildings and had management contracts with other landlords. Sam practiced law for four days and then quit to focus on his real estate business.
One of the things Zell has always relied on is his study of demographics and how it relates to demand. He saw college towns grow and have a housing shortage, especially for students. Sam raised the money and bought larger apartment buildings. He became a millionaire when he was thirty years old.
Sam was one of the pioneers of Real Estate Investment Trusts (REITs), bringing liquidity to the markets and introducing real estate as a tradable asset on Wall Street. This brought more interest to real estate as an asset class and helped him raise more money for projects.
Of course, everyone’s talking about the massive sale of Equity Office properties for $39 billion. That was cautious, as he was able to secure an excellent price at the peak of the market through a bidding war. Blackstone ended up winning the war, paying $55.50 per share. The first offer came at $40 a share from Vornado.
He also shifted focus to underperforming companies, buying them cheap, flipping them, and then selling them. Zell applied the same principles he learned from real estate investing to the corporate buyout market.
Many would speculate that Sam has a crystal ball. But it will be wrong. Nobody beats a thousand. He bet on the Chicago Tribune and failed. It was an asymmetric bet, and it didn’t really seem like it was going through a deal breaker.
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 take that bet every time.
The “real” Sam Zell, about whom little is known
Part of Sam’s success was his lack of ego. You would think that someone as rich and powerful as him would be arrogant, but that was not the case. He talks realistically about his successes as much as about his failures.
And while he is considered a giant in the investment world, I will focus on a little known fact about Sam. He was an iconic gift-giver. Not many people know that every Christmas, Sam sends custom-made gifts to his closest friends, colleagues and business partners. These were elaborate automata – moving mechanical jukebox sculptures with custom lyrics. The message revealed by the gift was Sam’s thoughts on the coming year and where the market is heading.
Looking back on his life, some things stuck out to me. First, identify the undervalued assets. Second, understand supply and demand as they relate to those assets. These two essential skills, when applied, will make any investor a millionaire.
Rest in peace, legend.
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Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.