Am I Being Too Subtle? Straight talk from a Business Rebel – Sam Zell

Sam Zell is an iconic real estate mogul.  His journey, his deals, and his approach to doing business and living life will inspire you. 

My Notes

  • An entrepreneur is someone who doesn’t just see the problems but also sees the solutions–the opportunities.
  • If everyone is going left, look right.
  • It’s all about long-term relationships. In any negotiation I believe in leaving a little bit on the table
  • Reputation is your most important asset
  • Some of my most interesting and lucrative investments seemed counter intuitive at the time
  • I work out every morning at 4:45, I’m in the office by 6:30 am, and I don’t get home until 7.
  • If there is scarcity, price is not object. This basic tenet of supply and demand would later become a governing principle of my investment philosophy.
  • His company was entrepreneurial, based on transparency, initiative, creativity, trust, and the alignment of interests. We paid people enough salary to live comfortably, but all of their ups came from participation in investments.
  • If you’ve got a big downside and a small upside, run the other way. If you’ve got a big upside and a small downside, do the deal. Always make sure you’re getting paid for the risk you take. Never risk what you cannot afford to lose
  • Invest below replacement cost.
  • The flaw in US commercial real estate is that the volume of development has been related to the availability of funds, not to demand.
  • Seeing overbuilding, Sam stopped buying assets, started accumulating capital, and got ready for a great buying opportunity.  His thesis was that over the next five years he would make a fortune buying distressed real estate. He then started a property management company focused on distressed assets.
    • Less than a year later (1974) he was buying assets at 50 cents on the dollar.
    • His buying criteria at the time: below replacement cost; good-quality, well-located.
  • As a result of the inflation of the 70’s, he believed the real money in real estate came from borrowing long-term, fixed-rate debt in an inflationary scenario — this depreciated the value of the loan and increased the position of the borrower.
  • Our friendship and trust, different perspectives, and opposing banter and laughter defined our business; it was the secret sauce to our success.
  • A leader can’t let his emotions impact his stability. You have to have methods that keep you steady.
  • Liquidity equals value
  • Attracting investors is as much art as science. To gain an advantage, I get creative. I create custom T-shirts to help seal the deals.
  • Real estate tends to lag the general economy.
  • The shift in priorities, lifestyle, and discretionary income that began in the 1990’s was a harbinger for a new era of consumerism. Real estate isn’t just about buildings as inanimate objects. It often reflects the pulse of the nation.
  • Step back in time and you’ll see that the birth of the public REIT industry was an enormous transformation from the “dark ages,” when commercial real estate was shrouded in mystery. Nobody but insiders could figure it out. Brokers held all the cards, and they weren’t telling. There was no visibility in to markets or assets, and there were no metrics. The opaque nature of the industry contributed to overbuilding and cycle extremes.
  • By virtue of their lower leverage, the CRE industry as a whole is much less cyclical and volatile. Just look at the way it weathered the Great Recession of 2008, in contrast to single-family real estate.
  • The most reliable measure of our buildings’ value is replacement cost. Replacement cost determines the price of future competition.
  • Taking risks is the only way to consistently achieve above-average returns — in life as well as in investments.
  • I have always prized leadership that isn’t afraid to be challenged, that invites new ideas, and that seeks input from the employees on the ground.
  • 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.
  • 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, judgement, convictions, and passion.
  • I am a voracious consumer of information.
  • When I negotiate, I spend a lot of time thinking about the person across the table, their motivation and priorities. I work to understand which issues are the deal breakers for them. . . I’m crystal clear on the ones that are most important to me.
  • My definition of “win” is not binary. It is not a zero-sum game. Negotiation that leads to a winner and a loser rarely leads to a successful transaction, or another one down the road.
  • Don’t take yourself too seriously.
Greg Barrett
Greg Barrett
Greg Barrett is the founder and editor of CREentrepreneur.