Am I Being Too Subtle?: Straight Talk From a Business Rebel

by Sam Zell

Anixter and its explosive expansion converted Itel into a growth vehicle, and we decided to sell all of the holding company’s other subsidiaries. It was the right answer, but getting there was painful. In 1992, I sat down with GE Capital Railcar Services with a proposal to lease them Itel’s entire railcar fleet.

Nine months in, we were nearing a close. But then the bean counters found that the books were off by 2 cents. Everything hit a wall for two weeks while they went back and recalculated the entire transaction until they found the error. For 2 cents. On a $2.3 billion transaction.

Eventually we closed, and it was a great deal for everyone. But I called it the deal from hell because getting there felt like going down into Dante’s inferno. In fact, it was such an extraordinary process that I wanted to memorialize it. So I commissioned a painting that depicted the key participants and their roles, along with various scenes over the last year. The final result was a six-by-five-foot oil painting that depicted Dante’s (or in our case Itel CFO, Jim Knox’s) journey through hell.

I replied, “I’m a professional opportunist.” And that has been my response to that question ever since.

I’ve always believed I am at my best when the scenario around me is at its worst. And I was never tested more than in the early 1990s when I was faced with repeated crises and staggering challenges. The first, in 1990, was the worst of all. I lost Bob.

Bob was only forty-six in 1987 when he was diagnosed with advanced colon cancer.

“Sam, you have to understand. I’m going to die, and I’m going to die soon.”

A gaping hole opened up in my life when Bob died. In a way, it was also my moment of truth because his death coincided with the most challenging time in our business to date. Just weeks later, the economy had tipped into a full-blown recession.

We were rich in assets but starved for cash, and the insatiable need for capital dominated my waking hours.

There were weeks when our billion-dollar company was scrambling to scrape up enough money to make payroll.

It was a time of enormous grief and uncertainty. To stave off panic, I drew on an experience that had happened over two decades prior—the first and only time I can remember feeling truly overwhelmed in my career.

Well, the partner was one of those guys who was very measured and always spoke evenly and softly. I never saw him lose his temper or his cool. He sat me down and very quietly asked me questions at a regulated pace. As we discussed the alternatives and talked through all the angles, I felt my blood pressure return to normal. And I went and got the deal done with somebody else. That was the day I learned, thanks to that attorney, that a leader can’t let his emotions impact his stability. You have to have methods that keep you steady.

I’m a prolific maker of lists, and the more trouble I had in the early 1990s, the more I attacked it and dealt with it by making lists and checking off items as we accomplished them. My big-picture goals were all about creating liquidity by monetizing assets, fund-raising for opportunities on the horizon, and doing great deals. By zeroing in on the tasks to accomplish each of them, I avoided being overwhelmed, professionally and emotionally. My first priority was cash. I couldn’t jeopardize what we had built by selling in desperation, but I couldn’t keep going without cash. I didn’t know it then, but this phase in my career was the genesis of a mantra I would repeat regularly for decades to come: Liquidity equals value.

When we first invested in Vigoro in 1985, we didn’t know shit about shit, but the company ticked off all the right boxes.

After meeting with them, it took us less than a day to decide to invest our first $10 million in the company.

So I went to school, so to speak, and I learned everything there was about doing offerings. Eventually, I got to the point where I’d run the book on my IPOs.

I’d manage the process, and on some deals I’d be up until three in the morning the day of closing, allocating stock to the various players. That meant I had to learn who all the players were, including which ones had a track record of being real investors rather than flippers. I created personal relationships with the buyers, demonstrating my engagement and commitment to being a long-term owner.

And I got particul...

at the road shows, eventually doing hundreds of IPO presentations for our various com...

I was worried about the third guy who was sharing our sleeping car, so I slept all night clutching my briefcase.

Meetings blurred. Sometimes we couldn’t remember who we were talking to, or whether we were repeating ourselves.

Zell/Chilmark ended up owning Quality Food Centers, Carter Hawley Hale, Sealy Corporation, Schwinn Bicycle Company, and a number of other companies.

Probably the most memorable Zell/Chilmark deal for me was Jacor, a well-run, Cincinnati-based radio station owner with a bad balance sheet. From 1992 to 1996, we invested roughly $79 million for a 90 percent stake in Jacor.

Then, in February 1996, Congress passed the Telecommunications Act. Buried in that tome was a clause that eliminated the twenty-station-per-band cap and replaced it with a 50 percent market-share ceiling. In other words, companies could buy as many stations as they wanted as long as they didn’t own more than 50 percent in any given market.

I read the act and immediately called up Randy. “Get on a plane to Chicago fast,” I told him. When he arrived, I sat him down, and said, “Randy, this is one of the biggest moments in your career. I want you to go out and buy every radio station you can get your hands on in America. You buy them and I’ll figure out how to finance them.”

Timing and execution made all the difference. We earned most of our money on the first one hundred stations we bought—numbers 20 to 118. Why? Because after that the rest of the industry caught on...

Clear Channel was a good fit to acquire Jacor for several reasons. I liked L. Lowry Mays, the founder and CEO. He promised to maintain Jacor’s management, and from a portfolio standpoint there would be few issues for government regulators to raise.

So, in 1999, we sold Jacor to Clear Channel at the top of the industry cycle for $4.4 billion in stock and a total return of 1,237 percent. That was a fun investment.

On a personal front, as I’ve said, the early 1990s were rough. My second divorce in 1994 didn’t help. Sharon and I had drifted apart.

Technically, our separation had begun in 1983. She was spending a lot of time in Sun Valley, Idaho, and had built a life there, while my life was in Chicago. Over the years, I had just resolved that someone who had the responsibilities I had and whose goals required such an enormous amount of attention simply had to make a trade.

One of my favorite quotes, paraphrased, is “Those who cannot remember the past are condemned to repeat it” by George Santayana.

Once again, too many people got swept up in the fever of easy money and the perceived notion that we could build our cities to the sky. The Black Monday stock market crash in October 1987 kicked off a new recession.

So I wrote an article titled “From Cassandra, With Love” and it ran in the March 1988 Real Estate Issues. Cassandra was a character in Greek legend cursed by Apollo with the ability to make accurate predictions that no one believed. In my article, I presented a dire warning to the real estate industry, which, not surprisingly, no one took seriously.

We’d head to the next city, and on landing, I’d get back into the monkey suit. And so on. I raised $400 million (about $785 million today), and at the closing dinner, the Merrill team gave me a pinstripe suit with a shirt and tie sewn in, and a zipper, so I could just step in and pull it up. For years afterward I had that suit on a stand in my office.

So when Rockefeller Center in Manhattan came into play, I pursued it, thinking the asset would be the proverbial icing on our office-portfolio cake in a public offering.

While there were many impediments in our negotiations, there was little doubt throughout the process that there was no enthusiasm for a Chicago guy to buy an icon of New York City at a discount. I think there are certain assets that are particularly vulnerable to being “hometowned,” and Rock Center was one of them.

We debuted our real estate holdings on the New York Stock Exchange with Manufactured Home Communities (MHC), now known as Equity LifeStyle Properties (ELS), and its forty-seven manufactured home communities. It was one of the early companies to list as a REIT in the modern commercial real estate era. Today, ELS is the largest owner of manufactured home communities and recreational vehicle (RV) parks in the country, and continues to be one of my favorite companies.

The image of manufactured homes is down-market. People think of a transient, low-class setting, with a guy in a ripped T-shirt drinking beer and grilling hot dogs outside a rundown box and yelling “Stella!” like Marlon Brando in A Streetcar Named Desire. That was my perception, anyway.

And they were. The MHC portfolio, which was owned by Trizec Properties, was one of the largest premier portfolios of this asset class in the country. The sites were beautiful—lakeside, oceanfront, wooded, landscaped. I couldn’t believe it. They were like stylish subdivisions. They had porches and garages and clubhouses and golf courses.

So we looked at the numbers and found that there was also a strong risk-to-reward ratio. There was constrained supply due to NIMBY (not in my backyard) regulations that created barriers to entry, making the development of new communities very difficult.

the portfolio had about a 1 percent turnover rate. Once residents moved to the ...

saying “If you’re going to pass, maybe this will help.”

So, ELS became the first company to combine and institutionalize the blended asset classes. Ironically, the manufactured home industry was almost as parochial about expanding its definition to include RV sites as the real estate industry had been to include manufactured home sites.

Today ELS has a huge portfolio of manufactured home and RV “resorts”—the best in the United States. It controls over 140,000 sites in thirty-two states and British Columbia. Since its 1993 IPO, ELS’s market cap of $296 million has grown to over $6 billion.

By the early 2000s, I saw on the horizon what I believed would be the single largest cultural change of my lifetime—the deferral of marriage.

Unlike me and my college friends, who were all married the first year out of college, people were waiting longer and longer to tie the knot. Each generation has had at least

a 10 percent decline in marriage by a...

knew singles would want to stay close to the action and that they’d sacrifice almost anything, specifically square footage, to do it, and they’d also pay more. They would want less living space and more community space. So we set out to reshape EQR’s portfolio from garden apartments in suburbia to high-rises in 24/7 cities. We completed that transformation in 2015. EQR ended that year with a market cap of $30 billi...

Today, instead of expressway frontage, apartments are measured by their “walk scores”—how many steps to public transportation, to the gr...

Real estate isn’t just about buildings as inanimate objects. It often reflects the pulse of the nation.