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Poor Richard's Almanack: Benjamin Franklin's Incredibly Popular Book of Aphorisms, Forecasts, and More
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Sam got his start in real estate when he was still in school, managing a 15-unit apartment building in return for free room-and-board. By graduation, it was netting $150,000. And by the time he received his law degree, he and his friend Bob Lurie were managing over 4,000 apartments and owned 100-200 units outright. However, he sold his stake in the business to Bob and moved to Chicago to be a lawyer.
After just one week as a lawyer, he quit and got back into the real estate business. He founded the predecessor to Equity Group Investments in 1968 and brought on Bob Lurie a year later. Bob and Sam began building a real estate empire that spanned multi-family, residential, office, manufactured housing, and retail assets. And in the 1980s, they moved 50% of their portfolio into distressed assets.
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“Competition skews people’s assessments. As buyers get competitive, the demand for assets inflates pricing, often beyond reason. I jokingly tell people that competition is great—for you. Me, I’d rather have a natural monopoly, and if I can’t get that, I’ll take an oligopoly.”
“There’s no substitute for limited competition. You can be a genius, but if there’s a lot of competition, it won’t matter. I’ve spent my career trying to avoid its destructive consequences.”
“Whether it’s the boardroom or management: Don’t depend on people unless you understand their motivations and are confident your interests align. Be an owner, act like an owner, and do everything you can to make sure everybody is aligned.”
“You've got to buy a ticket! Nobody wins if they don't play.”
“There’s a baseline IQ level needed to work at my firm, but I don’t need rocket scientists. After that, what best predicts your success in my world is drive, energy, attitude, judgment, conviction, and passion. And an ability to cut to the center of an issue. I’d trade another twenty IQ points for those qualities any day.”
Q. Let’s start with your background, tell us about your experience with real estate and how you became interested in Sam Zell?
I was classically trained in journalism at the University of Missouri-Columbia. Since a young age I wanted to be a journalist. I also really liked commercial real estate, construction cranes, buildings, etc. Over the years I learned how to meld those two interests together.
I’ve worked for daily newspapers, bi-weekly papers, monthly magazines, quarterly magazines and just about every kind of print publication. But I’ve always found a way to meld commercial real estate with journalism. My degree is in business journalism –which was a new concept back in the early-80s. Now 27 years later people talk about the death of business journalism.
One of the things that makes me different is that I wanted to be more than a reporter. I had bigger designs, and I knew that the best way to blend commercial real estate with journalism was to work both sides of the fence. So I’m a classically trained journalist, but I’ve also worked in public relations and marketing-I’ve worked for major agencies in Dallas and New York and I’ve also worked with real estate developers in Aventura, FL and Atlanta, GA.
So I can see things from a different perspective as opposed to being a traditional journalist- who often sees only one side of the equation. My opportunity to combine my passions came when I became the editor of National Real Estate Investor Magazine. I was there for most of the 1990’s and that’s when I met most of the top real estate investors. This also led me to meeting Sam Zell in 1995. Sam Zell was quite the character and hasn’t changed. When I first met Sam Zell I didn’t immediately admire him but I was certain that he would leave a mark in the real estate industry and in the business community.
Q. Why did you decide to write a book about Sam Zell?
Like any other person –I’ve always wanted to write a book. Everyone has a great story to tell but I never devoted the time or effort to doing it. I also never found the right subject matter. It wasn’t until I was working at American Airlines that I hired an editor, Adam Pitluk, who had written two books. He motivated me to think about it. Around that time Sam Zell had placed his bid for Tribune, a bid which in my opinion transformed Zel to a top US business figure. So I put together a couple of chapters and with the help of agent Robert Guinsler I was able to find Penguin Group’s Portfolio.
Q You began writing the book in the Summer of 2008. How did you prepare? Give us a run through.
First of all there were several obstacles- I kept asking myself if there was a reason why there aren’t any books on Sam Zell. It turns out that he doesn’t want a book written about himself. So Sam Zell didn’t cooperate in writing the book-and thus this is technically an unauthorized biography. Also, around that time BusinessWeek wrote an unflattering profile of Zell’s acquisition of Tribune. So in August of 2008 Sam Zell shut down his public relations effort and was unwiling to talk to the media. I also encountered another difficulty – many of his closest friends and colleagues were reticent to open up and tell me about him, and this is true of any major business figure, especially such a character as Sam Zell. Still, I was able to speak to dozens of individuals, many on background and others on the record.
My goal was to create a book that was approximately 250 pages and an easy read. So starting in the summer I had approximately 4 months to write the book. The challenge was writing a balanced, credible book that would reflect Zell's accomplishments and recent Tribune deal.
The real turning point came in December of 2008, when I first heard that Tribune was in real trouble – this was only 3 weeks away from my deadline. On December 8 of 2008 Tribune filed chapter 11 bankruptcy protection, and I realized that it didn’t make sense to have a book about Sam Zell without covering the bankruptcy and issues facing Tribune. I spent most of December rewriting the book and preparing to follow the chapter 11 filing.
So moving into 2009 there were many events related to Tribune which I included in the book. An example would be the scandal involving the Governer of Illinois who was tied to the Chicago Tribune. This was quite a timely story and included in the book (something completely unforseeable in 2008).
Let’s talk about the book and Sam Zell.
Q. Most entrepreneurs become interested in entrepreneurship at a young age-whats Zell’s earliest story?
There is a story that is so appropriate for Zell. Here was a boy whose parents were very strict and who sent him into downtown Chicago every day for his Jewish studies. Zell was wandering around the train station (one day) and he found a new magazine called Playboy. It’s interesting that Zell noticed a market for this magazine and would buy copies for 50 cents and sell them to his friends in suburban Highland Park later in the day for 3 dollars. This is interesting because Zell always claims that he doesn’t see deals he sees markets.
This speaks to me about his character. Notice how it wasn’t Life magazine. No, it had to be Playboy and it says quite a bit about his outlook. Zell’s looking for things that are different, undiscovered, and often overlooked – yet also likely to be in demand.
Q. Where are the turning points in Sam’s career?
I would say the kick-off to his professional enterpreneurial career took place while he was at the University of Michigan where he discovered and started managing apartment complexes. When Zell entered the real estate business is when he really became aware of his entrepreneurial bent on a larger scale.
The core of Sam Zell is a real estate entrepreneur but he didn’t stick to real estate like most of his peers and competitors. Most people who get into real estate never leave it. Zell on the other hand avoids being enamored with any industry. He isn’t sentimental about business and so he isn’t beholden to any specific industry/sector.
I don’t want to generalize about real estate people, but I’ve been in the business for 27 years. Sam Zell has always been able to see past properties and buildings. There’s a huge difference between someone who develops real estate and someone who buys, sells, and manages real estate. Zell is an investor not a developer and this allows him to calculate his risk.
The other turning point in Zell’s career was meeting Rober Lurie. Zell was more entrepreneurial and Lurie was more measured and analytical. Together they were a very powerful team –and were together long enough that when Lurie passed Zell had been influenced by Luries thinking.
Q. Lets talk about real estate and the edifice complex. How has Zell avoided this complex for so long?
That’s a good question. If you compare Zell to Donald Trump, for example, there’s really no comparison. It’s very obvious that Zell is very passionate and measured while Trump pushes himself and likes to be in the spotlight. Here’s a simple example — there aren’t any “Zell” buildings whereas Trump puts his name everwhere.
Another example would be the battle for Rockefeller Center. I know for a fact that Zell didn’t go after that building to own one of the greatest landmarks in New York. Zell liked the situation because it was a great deal and the Rockefellers were in trouble. Many people criticized him saying that Zell was trying to be like Trump, yet he pulled away from the table when the bidding got too rich. This is a key self discipline of Zell and I think much of it was cultivated in his youth and in the way he was raised.
Q. Which one of Sam Zell’s deals is his “most successful deal”?
I think his best deal would be selling Equity Office Properties at the height of the real estate market in late 2006. It solidified his repuation as a master deal maker- even though luck played a big role in the outcome.
Q. What do you admire the most about Sam Zell?
“Admire” may not be the right word, but I enjoy listening to Sam Zell talk. Even though he is only a little over 5 feet tall and doesn’t command an enourmous presence, when he opens his mouth people stand around and listen. Even jaded journalists who call Sam names listen to him. He has a gift of being able to get his point across. Often times he’ll say “Do you want me to speak slower?” He’s really playing with your mind; he’s very, very smart –even borderline genius. On top of that he’s very self deprecating- for example his 11th commandement is “thou shall not take thyelf seriously”. He really lives by that commandment.
There are lots of things not to like about Sam Zell. You can say that he’s too forceful, risky, and many other things….but you really can’t get away from the fact that he is pretty grounded without being terribly egotistical. As Zell says, he looks forward and doesn’t have any regrets.
I also really enjoy the amount of time Sam spends with students. I’ve seen him stay after seminars –the guy has tons of companies to run and he’s fairly busy but he finds time to answer questions from students. He really enjoys education and spends a fair amount of his time giving speeches at schools and encouraging future business leaders.
Q. What do you think is most misunderstood about Sam Zell?
People really think Sam is egotistical (and not risk averse). I think you need a fair amount of self belief to accomplish things at the level of Sam Zell. Sometimes there is a fine line between the two and certainly that can be misinterpreted. At the core, Sam is very rational – he operates on the 70-30 rule meaning that Zell wants to be right 70% of the time. Anyone who is right 70% of the time in business is golden. He makes this analogy to baseball players (Tribune had a stake in the Chicago Cubs for a while)-and he says “I pay this guy millions of dollars to be right 1 out of 3 tries” yet here Sam is trying to be right 70% of the time.
Q. Give us the highlights of the Tribune deal.
The Tribune deal really put Sam in the media mogul club- and if you know Sam he’s as far as you can get from being a media mogul. He lives in Chicago, he’s not flashy and he saw the deal as an interesting bet where he could put a small amount of skin in the game and reap a potentially huge reward. My gut tells me that there is still hope in that deal once it emerges from bankruptcy. I think the war Sam faced with the journalists at Tribune really caught him off guard. Although he is known as a great judge of human character, I think he misread the intentions of journalists. Journalists just didn’t want to listen to his business advice or strategy. His caustic nature rubbed most people the wrong way, and his nature epitomized everything that journalists distrust (the big business guy motif).
Sam Zell made some very interesting points on the newspaper industry. He chastised journalists to be concerned about being business owners and employees. Journalists see themselves as contributing to the social good. Zell would rather see them contribute to the economic good. This doesn’t mean selling out but rather to be mindful of a balance between content and revenue for survival.
Q. What are the challenges facing the newspaper/journalism industry?
The problem is that print is an old model. Economically the nature of the business doesn’t work anymore. Why use ink and paper when news can be so timely and efficiently distributed via the internet? As for the social media, the question still is how to get ROI for the time spent on blogs, twitter etc. The ultimate mistake is to pretend the industry will not change.
Let’s talk about Sam Zell again.
Q. Amidst the Tribune deal Zell also has an increasing presence in international deal making? Give us some of the highlights.
Zell is taking the same approach to the rest of the world as in the US. He’s trying to see markets – he has a theory; to invest internationally you have to go where there is scale. In other words is there a market big enough for deal making to be worthwhile. He loves Brazil, for example. Zell was involved in the Middle East long before it became popular. Although he served as a consultant to Middle Eastern countries he never took the plunge to invest in Qatar, Abu Dhabi, Dubai –or any of the places that now are experiencing financial distress. If something doesn’t make sense he won’t invest. Tribune is an obvious exception, but he tends to see bubbles ahead of time.
Q. We’ve talked about Sam Zell, the investor and entrepreneur. Let’s talk about his management and leadership skills.
Well like most other top businesspeople Sam has a knack for spotting talent. He likes to find people that think like him but also bring something new to the table with different skills. One of his philosophies is that he is a fearful investor and he won’t hire anyone who is fearless- but he also won’t hire anyone that lets fear get in the way of rational decisions.
Q. Is there any material that you would add to the book (in a second edition etc)?
I would delve more into his background, childhood, and his relationship with Robert Lurie. I would also profile many more of his real estate deals. The book highlights Rockefeller Center and his sale of Equity Office but there is much more. There’s something about Sam Zell that makes him very popular to many people. I’d love to write more about what people are looking for in Sam Zell. I’d also like to dive deeper into his views on the future of business.
Q. What habits catapulted Sam Zell to success?
He has many habits that make him successful. One of the most interesting habits is that he’s a one-sheeter, that is to say he generally requires proposals and documents that come to his desk be limited to one page. Concepts should be clear and simple. Also, he doesn’t just rely on intuition –he likes to think and never does anything halfway. He has an incredible ability to focus on a particular situation and this stems from his self discipline.
Miguel: Ben thank you for taking your time to answer our questions. Happy Holidays.
Ben Johnson: Thank you. I’d also like to thank the great editors at Penguin and the numerous talented individuals who encouraged me to write this book.
Originally published on SimoleonSense.
On the importance of being indifferent to rejection if you want to be an entrepreneur. An excerpt from Am I Being Too Subtle:
Despite all those businesses, I only had one "job" while I was in college. During the summers of my junior and senior year, I was a traveling salesman for Helene Curtis, and I sold to drugstores and supermarkets. I didn't know anything about cosmetics when I started out, but I knew something about selling and I was a fast learner. Because I was a summer employee, I got all of the worst assignments. If you've never sold anything through cold calls or without appointments, it may be hard to imagine, but I promise you that it's humbling. Most responses are no. Some emphatic, some really emphatic. You just build up a tolerance for rejection. You learn to keep asking and to find ways to get a conversation going. If you can just start and keep a dialogue, you have a chance.
I drive a couple thousand miles, without air-conditioning, and it was hot. Every day, when 4:30p.m. came, I'd have to decide—was I going to make one more call? And I always did. I was determined to get the best sales numbers those crappy accounts had ever generated. I also wanted to leave an impression, and to pay back the guys who gave me the opportunity of a job in the first place.
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.
To make it easy to do your own research I've complied my favorite books written on and by Sam Zell.