February 29, 2024

If you were to ask most investors who they thought the biggest player in the real estate industry would be, the name Sam Zell would be many’s first thought. The legendary 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 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 to arbitrage Playboy magazines. He was able to buy them for $.50 in Chicago and then resell them for $3 in the suburbs. 

At the University of Michigan, he paid for his 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 manage the apartments. He was house hacking before it was cool.

By the end of law school, he owned three apartment buildings and had management contracts in place with other landlords. Sam practiced law for all of four days and then quit to focus on his real estate business.

One thing that Zell had always relied on was his study of demographics and how they relate to demand. He saw that college towns were growing and had a lack of housing, especially for students. Sam raised money and bought bigger apartment buildings. He became a millionaire by the time he was 30.

Sam was one of the pioneers of Real Estate Investment Trusts (REITs), bringing liquidity to the markets and introducing real estate as a tradeable asset on Wall Street. This brought even more attention to real estate as an asset class and helped him raise even more money for projects.

Of course, everyone talks about the huge sale of Equity Office Properties for $39 billion. That was prescient, as he was able to secure a premium price at the height of the market through a bidding war. Blackstone ended up winning the war, paying $55.50 per share. The first offer had come in at $40 per share from Vornado.

He also shifted focus to underperforming businesses, buying them cheap, turning them around, and then selling them. Zell applied the same principles he learned from real estate investing to the corporate takeover market.

Many might speculate that Sam had a crystal ball. But, they would be wrong. No one bats a thousand. He made a bet on the Chicago Tribune and failed. It was an asymmetric bet and he genuinely didn’t seem phased by the unraveling 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’d take that bet every time.

The “Real” Sam Zell That Few Know About

Part of Sam’s success was his lack of ego. You would think someone as rich and powerful as him would be egotistical, but this was not the case. He talks just as matter-of-factly about his successes as his failures. 

And while he is considered a titan in the investment world, I am going to focus on a little-known fact about Sam. He was a creative gift-giver. Many people don’t know that every Christmas, Sam would send out custom-made gifts to his closest friends, colleagues, and business associates. These were elaborate automata—moving, mechanical music box sculptures with customized lyrics. The message revealed by the gift was Sam’s thoughts on the coming year and where the market was heading.

Looking back on his life, a couple of things stick out to me. One, he identified undervalued assets. Two, he understood the supply and demand as it 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 opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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